ERISA is full of statutory deadlines, includes those related to disclosing Summary Plan Descriptions, changes enacted through Plan Amendments, required financial information, and governmental filings. Perhaps none of those deadlines is more critical than those related to the claims and appeals rules. Participants that are denied benefits are likely to sue. And as shown in the case of Fessenden v. Reliance Standard Life Insurance Co and Oracle USA, Inc., Group Long Term Disability Plan, 927 F.3d 998 (7th Cir. 2019), failure to follow meet the deadlines can have disastrous results.
Facts of the Case
Mr. Fessenden was a software engineer who worked for Oracle USA, Inc. (“Oracle”) until he began suffering from fatigue and severe chronic migraine headaches. He applied for, and received, short-term disability benefits from Oracle’s health and welfare plan. When the benefits expired, he did not return to work and was terminated. He last worked in January of 2008.
In March of 2014, Mr. Fessenden submitted a claim for long-term disability benefits dating back to his last day of work in 2008. Mr. Fessenden submitted numerous medical records and statements from treating physicians supporting his position. The Oracle Plan issued an initial determination denying the claim. This initial determination complied with all ERISA requirements (i.e., timing and content) and explained his appeal rights.
Mr. Fessenden submitted a request for appeal and included additional medical records to support his position. Under ERISA, the Plan has 45-days after receiving the request to issue a determination. The Oracle Plan then requested an additional 45 days to review the appeal request, which is permitted under ERISA. However, the Plan failed to respond within that timeframe. Once the period had lapsed, Mr. Fessenden filed suit.
The Oracle Plan did issue a final determination denying the claim. However, that determination was issued after Mr. Fessenden had filed his lawsuit. During the proceedings, the Plan disagreed with Mr. Fessenden on the exact date of the denial, but admitted it was beyond the 90-day deadline after receiving his notice of appeal.
There were two issues before the Court in this case; first, did the plaintiff exhaust his administrative remedies by filing a lawsuit before receiving the Plan’s final decision? Second, what is the appropriate standard of review?
The Court disposed of the first issue very quickly. ERISA requires participants to use the plan’s internal appeals process prior to filing suit. If a participant files a lawsuit before filing a claim or appeal with the Plan, it can be dismissed for “failing to exhaust administrative remedies.” However, in this case the Court held that the Oracle Plan’s failure to issue a decision by the deadline means Mr. Fessenden is deemed to have exhausted the internal process. That means he was entitled to seek judicial review.
The real question involved the second issue; what is the appropriate standard of review? Like most plan documents, the Oracle Plan document gave the administrator “discretionary authority” to determine a claimant’s eligibility for benefits. According to established ERISA case law, this means that the court reviews the plan’s decision under an “arbitrary and capricious standard.” This standard affords the plan a higher level of deference and looks at whether the decision is unreasonable or unsupported by the facts.
However, because the Plan failed to meet the statutory deadline, the Court held that the case should be reviewed under a “de novo” standard. This standard disregards the previous review or any weight placed on the available evidence. In other words, it allows the court to review the claim as if it were the plan administrator or only Trustee and without considering previous determinations (often called “first blush” in legal proceedings).
The Oracle Plan tried to argue that it “substantially complied” with the rules. Substantial compliance is a legal theory which askes a court to ignore a technical violation because it caused no, or minimal, harm to the claimant. In essence, the Oracle Plan was arguing that it should not lose the deferential standard of review solely because it failed to meet the notice deadline. They pointed out that the final determination was only one month after the deadline had passed.
The Court rejected this argument on two separate grounds. First, the ERISA claims and appeals regulations explicitly state that “in no event” can a deadline be extended. Essentially, the Court notes that there is not any “wiggle room” when it comes to the deadlines.
Second, equitable considerations supported the denial of Oracle’s argument. According to the Court, an untimely decision cannot substantially comply with ERISA because “there is nothing to review at the time that the administrative remedies are deemed exhausted.” That means there is not “an exercise of discretion” on which the court could defer or rely on. Further illustrating this point is that Mr. Fessenden submitted additional evidence along with his request for an appeal. Because of this, the Court held that a de novo standard of review should apply to the determination.
The real issue is the standard of review. A deferential standard of review is crucial when a participant sues a plan following a denial of benefits. It forces the participant to prove an extraordinary reason for why his or her appeal should have been granted. Additionally, under this standard the court also considers the evidence reviewed by the administrator or trustees, and the weight placed on each piece of evidence.
With a de novo standard of review, all the above is thrown out the window. Instead, the court gets to act as a “super trustee” and will review all the issue at first blush and without any deference to previous determinations.
Finally, it is important to note that the regulations have an exception for multiemployer plans that meet at least quarterly. Appeals must be addressed at the quarterly meeting following the request, and the notification rules kick in following the meeting. Nevertheless, the point of the Fessenden case is that administrators, trustees, and plan professionals all must remain on the same page when it comes to issuing notices to participants and beneficiaries following a claim or appeal.
In the end, if a participant request or communication seems like a claim or appeal, treat it as such and follow the rules. A deferential standard of review is a powerful legal tool in litigation. Remember, close may count in horseshoes and hand grenades, but not ERISA.