You know that many states ban discretionary language in ERISA plans.  This issue tees up litigation over what state law will apply –the choice of law issue.

This new case is a good read because it provides helpful analysis when litigating choice of law issues: the structure of the plan may help win choice of law issues.

Choice of law decisions may be more favorable when the employer’s plan is part of a trust with a Master Policy covering participating members over many states.

Earle v. UNUM Life Ins. Co. of America, CV 19-2903-JFW (C.D. CA. July 23, 2020)(Employer was member of trust with thousands of employer/members over 39 states — California resident sought California law to apply; court applied Maine law to make sure decisions (over 39 states) were made uniformly — abuse of discretion standard applied).

Kudos to Nicole Blohm and her team at Meserve for a nice win…

FACTS: In March 2017, Earle, an operating room nurse residing in California, fell and claimed at the time only that she had “cut her finger on the rail.”  Earle later claimed, but did not report until August 2017, that she experienced vision impairment after her fall. Five months after her fall she consulted with doctors who concluded she had cataracts, and macular holes in her eye which impaired her vision. The physician opined the macular hole was caused when her “head violently jerked backwards” during her fall months earlier.  There also were complications during her subsequent retinal surgery.  Earle made an Accidental Bodily Injury claim under the ERISA-governed plan.

UNUM denied her accidental bodily injury claim because: (1) “macular holes can occur spontaneously without any apparent cause”; (2) there was no evidence claimant’s head jerked violently in her fall; (3) it is “very unlikely” one would experience a macular hole from violent head jerking anyway; and (4) Earle’s current impaired vision likely was a result of pre-existing conditions and complications during her retinal surgery.

Earle did not see it that way…. and brought suit, arguing that California’s ban on discretionary language required de novo review. UNUM argued Maine law should apply because (at the time) Maine had no ban on discretionary language in plans.

DISTRICT COURT HELD: Applying Maine law and discretionary review: UNUM correctly denied the accidental bodily injury claim.

  1. Choice of Law—Applying Discretionary Review Standard.
    • “Where a choice of law is made by an ERISA contract, it should be followed, if not ‘unreasonable or fundamentally unfair.”  Op. at 12.
    • The Court applied Maine’s law (which at the time did not ban discretionary language in ERISA plans).  The court did not apply California law which banned discretionary language. “[T]he Court concludes that it would not be ‘unreasonable or unfair’ to enforce the Maine choice of law provision in the Summary of Benefits.”  Op. at 13.
    • The employer subscribed to the Trust, which conferred discretion with Unum. “The purpose of the trust’s structure is to support consistent life and ADD coverage for hundreds of thousands of employees who are employed by tens of thousands of employers across thirty-nine states and Washington D.C….[A]pplying the laws of one governing jurisdiction, Maine, Unum ensures that the… benefits insured by the Master Policy are uniformly administered….”  Op. at 13.
  1. Interpreting ERISA policies in the Ninth Circuit.
    • In the Ninth Circuit, when interpreting ERISA policies, the “doctrine of reasonable expectations” applies.  Op. at 14.
    • In assessing pre-existing conditions, if the language in the policy is conspicuous, then the “substantially caused” standard applies. Op. at 15.
    • That means the pre-existing condition “‘must be more than merely a contributing factor’ and that a relationship of ‘undetermined degree is not enough.’”  Op. at 15.
    • The terms and provisions regarding coverage were conspicuous. (The Court cites helpful cases and provides insightful analysis on this issue.)

3.  Unum did not abuse its discretion when it concluded that Earle’s loss of sight in her right eye was not “substantially caused by her” fall.  Op. at 17.

4.  Even if Earle’s fall contributed to her vision loss, Unum did not abuse its discretion when it concluded that Earle’s preexisting condition and retinal surgery substantially contributed to her loss of sight.  Op. at 18.

ERISA preemption of state law claims is today’s topic…

This issue comes up more frequently now with managed care organizations creating networks of doctors or preferred providers, and the issue that arises is: at what rate should the insurer pay for services provided by out-of-network health care providers.

And what happens when the insurer expressly agrees to pay the out-of-network provider, before services are rendered?

Does ERISA preempt the breach of contract claim brought by the out-of-network provider?  NO

The Third Circuit just addressed this issue of first impression this way:

“What remedies are available to an out-of-network healthcare provider when an insurer agrees to pay for the provision of services that are not otherwise available in-network and then reneges on that promise?”

Plastic Surgery Center v. Aetna Life Insurance Company, __ F.3d __, 2020 WL 4033125 (3rd Circuit July 17, 2020)(Out-of-network health care provider’s breach of contract and promissory estoppel claims not preempted by ERISA, but unjust enrichment claim was preempted by ERISA.)

FACTS: Aetna was the insurer of an ERISA-governed health plan for various employers. JL needed breast reconstruction and DW needed “facial reanimation”—both medical procedures were not available “in-network.” Both patients were referred to Plastic Surgery Center of New Jersey (PSC), an out-of-network provider. During phone calls between Aetna and PSC, Aetna agreed to pay “a reasonable amount” for breast reconstruction services, and the “highest in-network” level pay for facial reanimation.

After PSC performed these services, Aetna refused to pay. Instead of paying $292,742 for the breast reconstruction, Aetna paid $95,534.  Instead of paying $420,750 for facial reanimation, Aetna paid $40,230. PSC then brought suit alleging breach of contract, unjust enrichment and promissory estoppel. Aetna argued those claims were preempted by ERISA.

ISSUE (as phrased by the Court): “What remedies are available to an out-of-network healthcare provider when an insurer agrees to pay for the provision of services that are not otherwise available in-network and then reneges on that promise?”

3rd CIRCUIT HELD: Breach of contract and promissory estoppel claims not preempted by ERISA; unjust enrichment claim preempted by ERISA

  1. Many insurers have inserted anti-assignment provisions in ERISA plans. Anti-assignment provisions place out-of-network providers in the unenviable position of having to “bill[] the beneficiary directly” and, should payment not be forthcoming, of having either to “rely on the beneficiary to maintain an ERISA suit or to sue the beneficiary directly.”  Op. at 16.
  2. Anti-assignment provisions are enforceable. Op. at 16.
  3. “In response [to anti-assignment provisions], out-of-network medical providers like [PSC] have attempted to secure a new foothold—a promise of payment from the insurer in advance of any services. And that, in turn has given rise to a different class of claims for non-payment—common law claims…including breach of contract, unjust enrichment, and promissory estoppel.” Op. at 16.
  4. Common law claims like breach of contract “could not be brought under section 502(a) [by JL or DW] because Aetna’s alleged liability would flow not from the plans, but from an independent agreement reached between [PSC] and Aetna….”  Op. at 17.
  5. PSC’s common law claims for breach of contract and promissory estoppel are not preempted by ERISA because PSC “has plausibly pleaded breach of contract and promissory estoppel claims that do not ‘relate to’ ERISA plans….”  Op. at 18.
  6. PSC’s common law claims for breach of contract and promissory estoppel plausibly seek to enforce obligations independent of the ERISA plan.  Op. at 20.
  7. PSC’s common law claims for breach of contract and promissory estoppel “do not require interpretation or construction of ERISA plans.”  Op. at 26.
  8. PSC’s common law claims for breach of contract and promissory estoppel “do not have a ‘connection’ with ERISA plans.”  Op. at 31.
  9. “As pleaded, [PSC’s common law breach of contract and promissory estoppel] claims do not interfere with the administration of either plan.”  Op. at 35.
  10. “Holding [PSC’s common law claims preempted by ERISA] would undercut ERISA’s purposes.”  Op. at 37.
  11. However, PSC’s unjust enrichment claim IS preempted by ERISA because the benefit conferred “is not the provision of the healthcare service per se, but rather the discharge of the obligation the insurer owes to its insured.”  The benefit conferred is premised on the ERISA plan. Op. at 41-42.

 

You already know about the contractual limitations provision in disability policies. The provision works to bar untimely lawsuits. 

So, it is no surprise that the interpretation/application of these provisions has been the subject of significant litigation.

Here’s a short new case concluding the contractual limitations provision was “unambiguous,” and dismissing the claim as untimely. Kuber v. Prudential Insurance Company of America, 2020 WL 3542308 (11th Cir. June 30, 2020).

FACTS:  Kuber stopped working due to disability on September 18, 2012. Prudential paid disability benefits until January 2015, when his benefits were exhausted. After various administrative appeals, Kuber filed suit December 28, 2018, asserting a breach of contract claim. (This claim was not governed by ERISA.)

The Prudential policy stated that “[Kuber] can start legal action regarding his claim 60 days after proof of claim has been given and up to 3 years from the time proof of claim is required.”  The policy also required that Kuber provide proof of claim “no later than 90 days after [his] elimination period ends.”

ISSUE: Whether Kuber’s claim was time-barred by the contractual limitations provision?

DISTRICT COURT HELD: Kuber’s claim was time-barred by the contractual limitations provision.

11th CIRCUIT COURT OF APPEALS HELD:  AFFIRMED

  1. Choice of law: “Sitting in diversity, we apply the forum state’s choice-of-law rules to decide whether a choice of law provision applies…. We see nothing in Florida policy that conflicts with Delaware law here.  So Delaware law governs our analysis of the limitation provision.”  Op. at 4.
  2. Enforcement of the contractual limitations provision: “The policy’s limitation provision is unambiguous….[I]n a normal case (like this one) the three year clock starts running 90 days after his elimination period ends. And that time limitation is reasonable here.”  Op. at 5.
  3. “Applying the limitation provision’s plain meaning, we reach the same conclusion as the district court.  Kuber allegedly stopped working September 18, 2012.  His elimination period ended 180 days later—March 17, 2013.  The policy thus obligated him to provide proof of claim 90 days after that—June 15, 2013.  Skip three years and you land on June 15, 2016.  Kuber filed suit in December 28, 2018—over 30 months late.  His claim is time-barred.”  Op. at 5. 

 

This just in….

On May 4, 2020, The Department of Labor (DOL), the Department of the Treasury, and the Internal Revenue Service issued the final ruling, linked here final ruling that “extend[s] certain timeframes otherwise applicable to group health plans, disability and other welfare plans, pension plans, and their participants and beneficiaries under ERISA and the Code.”

This email focuses solely on changes and extensions made to the timeframes for participants to exercise rights pertaining to certain medical and disability claims and appeals of denied claims.

 Key Take Away: Administrators will be expected to extend the time for claimants to file a claim, or appeal a claim, and must disregard days during the “Outbreak Period.” “Outbreak period” means fromMarch 1, 2020 until 60 days following the announced end of the COVID-19 national emergency.”

How do you comply with these temporary rule changes? Examples are provided, below.   

NOTE: For purposes of these examples, below, an assumed end date for the National Emergency was needed to make the examples clear and understandable. Accordingly, the Examples assume that the National Emergency ends on April 30, 2020, with the Outbreak Period ending on June 29, 2020 (the 60th day after the end of the National Emergency). To the extent there are different Outbreak Period end dates for different parts of the country, the Agencies will issue additional guidance regarding the application of the relief in this document.

EXAMPLE:  Extended time for claims for medical treatment under a group plan.  Participant “is a participant in a group health plan. On March 1, 2020, Individual D received medical treatment for a condition covered under the plan, but a claim relating to the medical treatment was not submitted until April 1, 2021. Under the plan, claims must be submitted within 365 days of the participant’s receipt of the medical treatment. Was Individual D’s claim timely? (ii) Conclusion. Yes. For purposes of determining the 365-day period applicable to Individual D’s claim, the Outbreak Period is disregarded. Therefore, Individual D’s last day to submit a claim is 365 days after June 29, 2020, which is June 29, 2021, so Individual D’s claim was timely.”

 EXAMPLE:  Extended time for filing an internal appeal— disability plan. Claimant “received a notification of an adverse benefit determination from Individual E’s disability plan on January 28, 2020. The notification advised Individual E that there are 180 days within which to file an appeal. What is Individual E’s appeal deadline? (ii) Conclusion. When determining the 180-day period within which Individual E’s appeal must be filed, the Outbreak Period is disregarded. Therefore, Individual E’s last day to submit an appeal is 148 days (180-32 days) following January 28 to March 1) after June 29, 2020, which is November 24, 2020.”

 

As you know, many states have imposed statutes which affect which standard of review governs ERISA claim decisions.

Many policies include a “choice of law” provision, setting forth which state law will govern the standard of review. 

But what happens when the policy does not have a “choice of law” provision?

How does the court determine which state law governs the standard of review in ERISA claims?

This new case provides practitioners with an excellent review of the deliberative process courts will undertake in determining which state law governs the standard of review. Byerly v. Standard Insurance Co., 2020 WL 1451543 (E.D. Texas March 25, 2020).

FACTS: Byerly, a Texas resident employed by a Florida-based employer, stubbed his toe on some furniture. Due to complications with diabetes and arterial disease, doctors ultimately had to amputate part of his leg. Byerly then sought ERISA-governed accidental death and dismemberment (AD&D) benefits.

Standard denied the claim, concluding the amputation was caused by “sickness” which is excluded under the policy: the amputation “was not caused solely and directly by an accident independently of other causes.”

Byerly brought suit in Texas alleging wrongful denial of benefits. At issue was what standard of review should be applied:  The standard authorized under Florida or Texas law? (Florida would have allowed a more favorable standard of review for the insurer).

DISTRICT COURT HELD, applying 5th Circuit and 11th Circuit precedent: Florida law applied to the ERISA claim brought by a Texas resident.

  1. “When jurisdiction is predicated upon the diversity of the parties before the court, “[a] federal court is required to follow the choice of law rules of the state in which it sits.” Op. at 16.
  2. “[W]hen exercising federal question [ERISA] subject matter jurisdiction, [courts] should apply ‘federal common law choice of law principles’[.]”  Op. at 16.
  3. “Federal common law follows the approach of the Restatement (Second) of Conflicts of Laws.”  Op. at 17.
  4. Key factors. In insurance contract cases, in the absence of a choice of law provision, the court considers: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation of business of the parties.  “If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied.”  Op. at 19.  The Court also considers “Section 6” principles.
  5. Application of the factors.
  • Place of contracting. The contract was entered into with a Florida employer and an Oregon insurer, using negotiators from Georgia and Florida. This favored application of Florida law. Op. at 20.
  • Place of performance. “The place of performance of a life insurance contract is the state where the premiums are made payable, even if the contract was made in another state.”  “[T]he fact that the premiums were paid in Florida to an Oregon company trumps Byerly’s involvement (applying for benefits in Texas). The place of performance factor favors Florida. Op. at 22.
  • Location of subject matter of contract. “The subject matter of a life insurance contract is the life of the insured.”  This factor favors application of Texas law. Op. at 22.
  • Domicil, Residence, Place of Incorporation.  “The domicil of the insured is a contact of particular importance in the case of life insurance contracts.” The principal place of business of the employer and Standard Insurance is Florida and Oregon, respectively.  Byerly is a Texas resident. “[T]he Court is still unpersuaded that the final factor favors Texas.  The majority of the members to this contract are not incorporated in Texas….”  Op. at 23.
  • Section 6 principles of the Restatement. (The Court applied a number of these factors, some of them are highlighted here.)
    • needs of interstate systems. The federal ERISA scheme “is the most important consideration for the Court.” Op. at 24.
    • relevant policies of the forum state and other states.   “Florida’s interest in the Group Policy, relative to Texas’ interest [to protect its citizens] seems persuasive to the Court.” Op. at 24.
    • justified expectations of the parties. “If any law is favored, it is the Florida law.”  Op. at 25.

This opinion is worth reading as it outlines the arguments one should make when contesting the choice of law to be applied to a claim.

You know that ERISA requires that the claimant receive “adequate notice in writing…setting forth the specific reasons for such denial, written in a manner to be understood by the participant.”

But what is “adequate notice,” and what is the remedy if the ERISA claimant received inadequate notice?

And… is the ERISA claimant entitled to “discovery” when litigating the interpretation of a contractual term? 

This new case highlights these points. Martinez v. Sun Life Assurance Company of Canada, 2020 WL 415145, __ F.3d __ (1st Cir. January 27, 2020)(Sun Life provided adequate notice, but barring Sun Life from asserting the provision would not be the proper remedy anyway; the Court did not abuse its discretion in denying Martinez discovery because “[i]t is unclear how discovery would help elucidate the plain meaning of an unambiguous contract term.”) 

FACTS: Martinez, honorably discharged from the military in 1992, worked for Athens Group and was eligible for ERISA-governed disability benefits. In November 2012,  he sought disability benefits due to physical restrictions related to Multiple Sclerosis. Sun Life approved the claim. In 2013 Martinez also sought service-connected disability compensation pursuant to the Veteran’s Benefits Act. The Veterans Administration awarded benefits as well.

The Sun Life policy calls for offsets related to “Other Income Benefits,” which included workers compensation benefits and benefits arising out of “Compulsory Benefit Act or Law.”

Martinez contended Sun Life improperly offset payments under his disability policy by the amount of his service-connected disability compensation (“Veterans Benefits”). Martinez argued: (1) Sun Life failed to give proper notice of the reason for offset; (2) the “Other Income Benefits” offset provision was ambiguous; and (3) Sun Life was discriminating against him because he was a veteran, in violation of the Uniformed Service Employment and Reemployment Rights Act (“USERRA”).

The district court determined Sun Life properly offset the Veterans Benefits.

FIRST CIRCUIT COURT OF APPEALS HELD: AFFIRMED

  1. Sun Life’s communications to Martinez complied with ERISA requirements that it “provide adequate notice in writing…setting forth the specific reasons for such denial, written in a manner to be understood by the participant.” Op. at 10. “Although Sun Life at times highlighted other rationales for the offset,  it indicated to Martinez on multiple occasions that it intended to rely on the ‘Compulsory Benefit Act or Law’ provision.”  Op. at 10.
  2. “[E]ven if Sun Life had not adequately disclosed its rationale to Martinez, barring Sun Life from raising the ‘Compulsory Benefit Act or Law” provision now would not be the proper remedy in this case….We typically have only barred a plan from asserting defenses to coverage not articulated to the insured when the lack of notice resulted in prejudice to the insured.”  Op. at 11.
  3. “Given that this case is strictly one of contract interpretation—a question of law—and Martinez had a full opportunity to present his arguments on construction of the Plan’s provisions, we could find no prejudice to Martinez even had Sun Life not adequately advanced its present argument in the initial denial.”  Op. at 11-12.
  4. The Court did not abuse its discretion in denying Martinez discovery because “[i]t is unclear how discovery would help elucidate the plain meaning of an unambiguous contract term.”  Op. at 12, fn 3.
  5. “There is nothing ambiguous about the term ‘Compulsory Benefit Act or Law’”.  Op. at 13. “[T]he only reasonable interpretation of ‘Compulsory Benefit Act or Law’ is a law that requires benefits be paid to any applicant who meets its qualifying criteria.”  Op. at 18.
  6. The Court dismissed the USERRA claim because there were no factual allegations “suggesting that Sun Life was motivated to apply the “Other Benefits” provision to him because he was receiving military-related benefits.” Op. at 25 (Emph. added).

What happens when the Social Security Administration issues a disability finding after the ERISA administrator has issued the decision denying disability benefits?

Is the ERISA administrator obligated to reevaluate the record based on this new finding? No.

Should the Court consider this as “evidence” in a subsequent lawsuit?  No.

This new case highlights the point. Ortiz v The Hartford, 2019 WL 5697784 (D. New Mexico November 4, 2019)(“[W]hen Social Security decisions arise after the close of the ERISA record, there is nothing for the administrator to assess, and the administrator needn’t reevaluate the ERISA claim.”)(attached).

FACTS: Plaintiff received disability benefits due to fibromyalgia and degenerative joint disease from February 2014 to September 6, 2016.  At that time Hartford determined, based on three medical reviewers, that she could perform jobs under the “any occupation” standard. Plaintiff later received a favorable decision for Social Security disability benefits. The plan conferred discretionary authority to Hartford.

ISSUE: Whether the Court should consider a Social Security Administration disability determination rendered after the close of the record for the administrative decision?

DISTRICT COURT HELD: NO

  1. “Hartford fairly and thoroughly evaluated Ortiz’s medical history at the end of the two-year period under the any occupation standard.”  Op. at 3
  2. Hartford produced an “Employability Analysis Report” based on information from Ortiz’s physician and found based on those physical restrictions she could perform three positions, including case aide, referral clerk and gate guard.  Op. at 3.
  3. Plaintiff argued that her treating physician’s opinions “should carry additional weight.” But the Court determined that the three independent doctors considered the treating physician’s opinions.  Besides that,  the Tenth Circuit has held that the conflicting opinion of the primary doctor is “not in and of itself a basis for reversal.”  Op. at 3.
  4. The Court concluded that it did not need to consider the later Social Security decision. Hartford’s decision came one year before the Social Security judgment.  When the administrator’s decision occurs prior to the Social Security disability decision, it cannot take the latter information into account. Op. at 3
  5. “[W]hen Social Security decisions arise after the close of the ERISA record, there is nothing for the administrator to assess, and the administrator needn’t reevaluate the ERISA claim.”  Op. at 4.

You know that the standard of review applied by courts will significantly impact how courts view an ERISA Plan administrator’s interpretation of an undefined plan term.

But what impact should an insurer’s policy manual have in assessing the “intent” of a plan term?  NOT MUCH.

This new case highlights both points.

Caldwell v. Unum Life Insurance Company of America, 2019 WL 4463495, ___Fed Appx. ___ (10th Cir. September 18, 2019)(Accidental death claim resulting from speeding vehicle excluded under “crime exclusion”: “[J]udicial reliance on a claims manual in this context is problematic when there is no evidence the manual was offered to, or even available to, an insured or otherwise used in advertising or closing a sale.”)

FACTS. Caldwell, an employee of Sinclair, died while driving on an unpaved road, and at nearly 40 miles per hour over the posted speed limit. Caldwell’s beneficiaries sought ERISA governed accidental death and life insurance benefits. Unum, the administrator, granted the life insurance benefit but denied the accidental death benefit because of an exclusion for “accidental losses caused by, contributed by, or resulting from[]…an attempt to commit or commission of a crime.” Speeding is a misdemeanor under Wyoming law. The plan conferred discretionary authority to the plan administrator.

The Caldwells argued that accidental death benefits were wrongfully denied because: (1) the term “crime” was not defined in the crime exclusion, (2) the term “crime” is capable of two different and contradictory interpretations; and, (3) Unum’s internal policy manual exempts traffic violations, including speeding from the definition of “crime.” 

ISSUE: Whether the Plan’s “Crime” exclusion includes speeding?

TENTH CIRCUIT HELD:

  1. Under the abuse of discretion standard of review, “‘A decision denying benefits based on an interpretation of an ERISA provision survives arbitrary and capricious review so long as the interpretation is reasonable.’” Op. at 2.
  2. Unum’s interpretation, that speeding was a ‘crime’, was reasonable.”  Op. at 2.
  3. “[W]e agree with the district court that the policy manual does not purport to be definitive and has substantial play in the joints….At the end of its discussion of the crime exclusion, the manual states in bold type: ‘Reminder: Each claim is unique and must be evaluated on its own merits.  The actual policy governing the claim must be referenced.’” Op. at 2.
  4. “[J]udicial reliance on a claims manual in this context is problematic when there is no evidence the manual was offered to, or even available to, an insured or otherwise used in advertising or closing a sale.”  Op. at 3.

NOTE: The dissent argued: The Plan’s “Crime” exclusion “is ambiguous… because the word “crime” is susceptible to two reasonable—albeit contradictory—interpretations: one covers speeding and one that excepts speeding.” Op. at 12. The dissent also relied on Unum’s policy manual to establish whether speeding was intended to be interpreted as a crime even though the dissent agreed “the [policy] manual is not the plan and cannot override the Plan terms……”  Op. at 14.

 

ERISA plan administrators are constantly pressured by claimants to render decisions quickly…. This is especially true with short term disability claims.

You already know that ERISA regulations require that disability claim benefit decisions be made “within a reasonable time but not later than 45 days after receipt of the claim.” 29 CFR § 2560.503-1. This period may be extended “for up to 30 days” twice, under certain circumstances.

So, what does “within a reasonable time but not later than 45 days” really mean? 

Can one get into trouble by deciding a claim too quickly?  Yes!  “Slowing down is sometimes the best way to speed up.”

Here’s the case of Speca v. Aetna Life Ins. Co., 2019 WL 3754210 (D. Nev. August 8, 2019)(Initial claim denial made within 14 days of claim submission: “Defendant should have—at a minimum—waited a few more days to gather medical records before denying Plaintiff’s initial claim.”)

FACTS: On November 7, 2015 Speca submitted a claim for ERISA-governed short term disability benefits. The Plan terms stated that decisions on claims for disability would be made “as soon as possible but not later than 45 calendar days after the claim is made.” The Plan also had the right to “extend the 45 day window twice, by 30 days each time,” if the claimant was notified “within the first 45 days of its intent to extend.”

-November 9, 2015: Aetna began attempting to obtain records from physicians. There was some difficulty reaching Speca to obtain information to retrieve records. Aetna informed Speca that it intended to make its decision on his claim within 14 days from the date he first submitted the claim, and urged him to call Aetna to provide further information.

-November 20, 2015:  Aetna denied the claim in part because Aetna had not received records from Speca’s treating physicians. Speca appealed, and submitted additional records.  And, Aetna retained a doctor to perform an independent record review of the records provided. Aetna then denied the appeal, and Speca brought suit.

ISSUE: Whether Speca was afforded a “full and fair” review of his claim?

DISTRICT COURT HELD: NO.

  1. “[N]othing in the Policy required Defendant to decide within 14 days….Therefore, Defendant’s argument that it had to deny Plaintiff’s claim at the conclusion of a 14-day investigation even while it was waiting on medical records is unpersuasive.”  Op. at 6-7.
  2. “While Defendant left Plaintiff several messages stating it would decide his claim by November 20, the administrative record reflects that he did not understand those messages, or may have not received them.”  Op. at 7.
  3. “Defendant should have—at a minimum—waited a few more days to gather medical records before denying Plaintiff’s initial claim.” Op. at 7.
  4. “[E]ven if Defendant ultimately made the right decision on the merits during Plaintiff’s appeal, it never reached the merits of the claim until that appeal….Plaintiff essentially received his initial claim review during his appeal with Defendant [and this denied Plaintiff] a full and fair review….”  Op. at 7-8.

You already know that ERISA regulations set specific timelines for the issuance of ERISA-governed long term disability decisions. See, e.g., 29 C.F.R. 2560.503-1(i)(1)(i) (45 days for disability claims and 60 days for others). In special circumstances, the administrator can extend the time by which benefit decisions are made.

An administrator’s failure to issue benefit decisions can have consequences: in those situations a claimant shall be deemed to have exhausted administrative remedies (and can sue), and the benefit denial may be reviewed under the de novo standard even if the administrator had discretionary authority.

But what happens when the administrator issues the benefit denial just “a little late?”  

Can the doctrine of “substantial compliance” excuse the late decision? NO.

Here’s the case of  Fessenden v. Reliance Standard Ins. Co. and Oracle, 927 F. 3d 998 (7th Cir. June 25, 2019)(The 2002 ERISA regulation amendments preclude application of the common law substantial compliance doctrine to late issued benefit denial decisions).

FACTS: Fessenden, a software manager, sought ERISA-governed long term disability benefits due to Chronic Fatigue Syndrome.  Reliance denied the claim.  The denial letter outlined how he could appeal, stating that Reliance would issue its “final decision within 45 days of the date that it received a request for review… unless special circumstances existed.” If the appeal involved special circumstances, Reliance would notify him of the final decision no later than 90 days from the date that it received the request. (These deadlines are also contained in 29 C.F.R. 2560.503-1).

Before Reliance issued the final decision, but after the 90 day deadline had passed, Fessenden sued Reliance and Oracle.

ISSUE: Can the doctrine of “substantial compliance” excuse a late issued benefit denial?  NO.

SEVENTH CIRCUIT HELD:

  1. “[W]hen a plan administrator fails to follow required procedures, such as deadlines for issuing decisions, ‘a claimant shall be deemed to have exhausted the administrative remedies available under the plan.’” Op. at 4.
  2. “The absence of a final decision…affects the standard of review. When a benefit plan gives the administrator discretionary authority…[but fails to render a final decision], there is no valid exercise of discretion to which the court can defer, and it decides de novo whether the insured is entitled to benefits.”  Op. at 4-5.
  3. Reliance argued that a decision issued  “a little bit late” is different from a case in which an administrator altogether fails to render a decision. And, because the decision was only a little bit late, Reliance argued the “substantial compliance” doctrine should excuse the late decision. Op. at 5.
  4. The “substantial compliance” doctrine, as a common law doctrine, “cannot override regulations that ERISA has authorized the Department of Labor to adopt.” Op. at 6.
  5. There is some question whether the “substantial compliance” doctrine exists after the 2002 amendments to the ERISA regulations.  Op. at 6-9.
  6. Even if the substantial compliance doctrine “remains valid, it does not apply to the violation of regulatory deadlines.” Op. at 10. (emph. added).
  7. “[S]ubstantial compliance with a deadline requiring strict compliance is a contradiction in terms.” It runs “afoul of Section 2560.503-1(i)(1)(i), which says that ‘in no event’ can a deadline be extended further.” Op. at 11. (emph in original).
  8. Other circuits have been willing to apply the substantial compliance exception to missed deadlines. But those decisions “relied on precedent that predates the 2002 version of the regulations.” Op. at 14-15.