A recent 7th U.S. Circuit Court of Appeals case could aptly be entitled ”Halpin Redux,” since the decision was written by Judge Kenneth F. Ripple, who penned Halpin v. W.W. Grainger Inc., 962 F.2d 685 (7th Cir. 1992), and the case covers the identical ground.
In Schneider v. Sentry Group Long Term Disability Plan, 2005 U.S. App. LEXIS 19273 (7th Cir., Sept. 7), an employee of Sentry Life began receiving disability benefits in 2001 due to major depression.
After approximately two years, the insurer conducted an independent medical examination, resulting in findings that plaintiff Janet M. Schneider had improved to the point where she could return to work, albeit under slightly different circumstances than her prior job. The report was then sent to the treating doctor, who confirmed that Schneider was ready to return to work but who later qualified his opinion to state that Schneider was unable to work full-time.
Based on the independent exam, though, as well as the treating doctor’s initial response, Sentry wrote to the plaintiff advising her that benefits were terminated and suggesting she contact human resources about a consulting position with Sentry Insurance. In response, Schneider sent an e-mail message to Sentry pointing out she did contact Sentry but that no work was available.
”It seems to me that, given the circumstances,” Schneider wrote, ”it is not acceptable for the Sentry Disability Plan to simply end the payment of benefits. As a result of my disability, I have no position in which a return to work is possible. I will gladly ‘Return To Work’ if I can find a position, whether within Sentry or outside of Sentry. I would think, though, that assistance in returning to gainful employment should be provided, since the lack of a position for me to return to is the result of my long-term disability. I would also think that benefits, at some level, should continue until I am able to find work, or for some additional period of time while I search for a new position (something along the lines of the process described in the ‘Return To Work’ section of the disability plan). Some rehabilitation efforts may also be necessary if I need to change fields of work in order to find employment.
”A review of the decision to simply ‘terminate’ benefits is in order. … Please let me know what ‘management’ decides,” she added.
The insurer treated Schneider’s e-mail as an appeal and responded by advising her that the claim appeal was denied. The plaintiff then filed suit, challenging Sentry’s handling of her claim and asserting a violation of section 503 of ERISA (29 U.S.C. §1133), which mandates that claimants receive a ”full and fair review” of claims that have been denied.
After both parties filed for summary judgment, the court ruled in Sentry’s favor. The appeals court reversed.
The 7th Circuit agreed with Schneider that the initial denial letter failed to meet ERISA’s notice requirements that mandate specific reasons for the denial be communicated to the claimant. Citing 29 C.F.R. §2560.503-1(g), the court found that contrary to the District Court’s ruling, there was no substantial compliance with the regulations. That conclusion was at least halfway foreordained by the parties’ agreement that there was no strict compliance with the regulations; substantial compliance was also found lacking since the termination letter failed to set forth the specific reasons for denial, failed to identify the plan provisions upon which the decision was based, failed to provide information on how to perfect the claim, and failed to advise the claimant on how to submit the claim for appeal.
”The notice that Sentry afforded Schneider was indefensible as a matter of statute, regulation and case law,” Ripple found. ”In the first place, the April 23 letter failed to meet the requirement, contained both in section 1133(1) and in section 2560.503-1(g)(I), that the notification set forth the specific reasons for the termination of benefits. Ms. Schneider was not provided with the 9-page report which Dr. Spierer prepared and on which Sentry insists it based its decision to terminate benefits. Nor was she provided with a summary of that report. Because Ms. Schneider did not know what reasons motivated Dr. Spierer’s conclusion that she was no longer disabled, she could hardly seek review of that conclusion.
”Furthermore, even a cursory reading of the April 23 letter reveals that it did not identify the specific plan provision on which the denial was based, as required by section 2560.503-1(g)(ii). On the first two requirements set forth in section 2560.503-1(g), then, Sentry’s notice did not permit Ms. Schneider ‘a sufficiently clear understanding of the administrator’s position to permit effective review.’ Halpin, 962 F.2d at 690.”
Overruling the insurer’s contention that Schneider’s e-mail note showed an understanding of the basis for the benefit termination and her appeal rights, the court found the ”artlessness of Ms. Schneider’s request” demonstrated just the opposite conclusion: a complete lack of adequate notification and showed the plaintiff did not understand her appeal rights.
”In short,” the appeals court determined, ”the April 23 letter did not fulfill the purpose of the statute, which was to ‘afford the beneficiary an explanation of the denial of benefits that is adequate to ensure meaningful review of that denial.’ Id. at 689-90. In light of the foregoing analysis, we must conclude that Sentry’s April 23 letter failed to comply substantially with the requirements of section 2560.503-1(g). Because we have determined that Sentry failed to provide Ms. Schneider with an explanation that is adequate to ensure a meaningful review of the termination of her benefits, we conclude that Ms. Schneider is entitled to summary judgment on her claim that Sentry violated ERISA, 29 U.S.C. §1133.”
The court then turned to the appropriate remedy for ERISA violation. There, too, the court also relied on Halpin for guidance in ruling that Schneider’s benefits had to be reinstated, rather than giving the insurer another chance to review the claim. In analyzing which form of relief is most appropriate, the court focused on ”restoring the status quo prior to the defective procedures.”
Using Halpin as a template, the court ruled that reinstatement was appropriate where benefits were terminated using defective procedures. Despite the insurer’s argument that reinstatement would provide Schneider with an ”economic windfall” should she be found not disabled after further review of the claim, the court distinguished cases involving initial denials of benefits from cases where benefits were improperly terminated. Again, focusing on restoring the status quo ante, the court ruled that reinstatement was the proper course.
The court was careful to note, however, in a concluding paragraph: ”We point out that the decision to terminate Ms. Schneider’s long-term disability benefits was not accompanied by the proper procedural protections, but it was not necessarily wrong. Sentry is free to revisit Ms. Schneider’s eligibility for benefits.”
This is a very significant ruling in many respects. By pointing out the importance of compliance with procedures in ERISA claims, it puts plan administrators on notice (in case they had forgotten since Halpin was issued 13 years ago) of the need to have in place procedures that satisfy the requirements of the ERISA claim regulations. Here, the insurer paid the ultimate price because the plaintiff was accorded a substantive remedy of receiving benefits as a consequence of the insurer’s failure to adequately comply with the regulations promulgated by the Department of Labor in accordance with 29 U.S.C. §1133.
Interestingly, from the court’s description of the contents of the medical reports, the benefit termination appears justifiable.
For example, in Sullivan v. Trilog Inc., 2002 U.S. Dist. LEXIS 20621 (N.D. Iowa, Oct. 9, 2002), the treating physician’s statement that the insured could perform her occupational duties for a different employer justified a denial of benefits since the issue was whether the claimant could perform her occupation, not just her particular job. Here, too, the focus in the medical reports was on the plaintiff’s ongoing impairment in working at the same job for the same supervisor.
The outcome of this case is perhaps even more surprising because the 7th Circuit ruled in Weiler v. Household Finance, 101 F.3d 519 (7th Cir. 1996), that the inability to work for a particular supervisor was not a qualifying disability under the Americans with Disabilities Act, 42 U.S.C. §12101. Citing precedent, the Weiler court ruled that an inability ” ‘to perform a particular job for a particular employer’ is not sufficient to establish a substantial limitation on the ability to work; rather, ‘the impairment must substantially limit employment generally.”’ 101 F.3d at 524 (citations omitted).
Nonetheless, because Schneider presented a situation where the claimant was not given a fair chance to squarely challenge the termination of benefits, the insurer was required to pay all past-due benefits, which is, in truth, a small price to pay to conform the defendant’s claims processing to the requirements of the ERISA law.
One final point bears mentioning. The 7th Circuit focused its ruling on the absence of ”substantial compliance” with the regulations. In Nichols v. Prudential Insurance Company of America, 406 F.3d 98 (2d Cir. 2005), the 2d Circuit rejected that concept, pointing out that the ERISA claim regulations promulgated by the Department of Labor constitute minimum standards of conduct. Thus, substantial compliance is insufficient; strict compliance is mandated.
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This article was initially published in the Chicago Daily Law Bulletin.
