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).