You know you are having a bad day when you have LOST the administrative file for a claim seeking ERISA disability benefits.

But is it fatal to the Plan’s defense of a decision terminating benefits? 

Maybe not.

Here’s the case of Schorsch v. Reliance Standard Life Insurance Co., __ F.3d __ (7th Cir. August 28, 2012) [PDF] (lost administrative file—Summary judgment for Reliance granted on defense of failure to exhaust administrative remedies).

This new case also confirms that insurers are not responsible for penalties caused by failing to provide ERISA plan documents.

FACTS:  Schorsch was a beneficiary under employer United Conveyor’s long term disability ERISA plan. United Conveyor was the plan sponsor and administrator, and delegated determinations on eligibility of benefits to Reliance Standard.  The plan did not have discretionary language.

United Conveyor never gave Schorsch the Summary Plan Description or ERISA plan documents. In 1993, Schorsch was deemed totally disabled following an auto accident.  In 2006, Reliance requested an independent medical exam (IME), which concluded Schorsch could work a medium duty job.  The IME conclusions were based in part on surveillance. Reliance then terminated disability benefits.  Schorsch’s attorney sent a “notice of intent” to seek reconsideration, but never submitted a request for review.

Schorsch sued.  During discovery Reliance admitted “it had lost the administrative record relating to Schorsch’s claim.” Op. at 4.

SEVENTH CIRCUIT HELD/RATIONALE and “PITHY QUOTES”:  Summary Judgment Affirmed.

1. Schorsch did not exhaust administrative remedies. Op. at 4.
2. Losing the administrative file does not preclude Reliance from asserting the defense of failure to exhaust administrative remedies. Op. at 4.
3. “Flaws in Reliance’s termination notice and other errors become relevant only if Schorsch reasonably relied on them in failing to request a review of its decision to terminate her disability benefits or if Reliance’s missteps denied her meaningful access to a review[.]”  Op. at 5.
4. Reliance’s termination of benefits letter provided adequate notice of the reasons for its decision and the process for review.  Op. at 5-6.
5. With regard to the lost administrative record, “[Schorsch] has not shown how Reliance benefitted from the loss or destruction of the administrative record….Reliance’s loss of the administrative file is regrettable, but we cannot see how it had any effect on Schorsch’s failure to seek review years earlier.”  Op. at 6.
6. ERISA penalties when employer does not provide plan documents: “We have long refused to attribute an employer’s behavior to an insurer because the employer is not the insurer’s agent.”  Op. at 6.
7. “We do not condone Reliance’s missteps—particularly loss of the administrative record, the confusion over who performed her vocational assessment, and the impression it gave Schorsch that its decision was based only on her medical records when in fact the surveillance report suggesting she ran a babysitting service influenced the decision by some measure.  But Schorsch cannot show how these problems caused her failure to seek review of Reliance’s termination decision.” Op. at 7.