A federal judge in Georgia recently answered the question of whether the penalties that are available under § 502(c)(1) of the Employee Retirement Income Security Act, 29 U.S.C. § 1132(c), up to $110 per day for failure to provide plan participants and beneficiaries with plan documents on request, applies to documents sought as part of an appeal made pursuant to section 503. Montgomery v. Metropolitan Life Insurance Co., 2005 U.S. Dist. LEXIS 34915 (N.D. Ga., Nov. 30).

Following an earlier ruling in this case, which held that defendant failed to provide the plaintiff with a full and fair review by withholding documents, the plaintiff requested that the court award statutory penalties. However, the court rejected the plaintiff’s request on several grounds.

First, the court noted that penalties were not requested in plaintiff’s complaint. However, even if the claim were properly brought, the court ruled that substantive grounds also precluded an award of penalties. The court pointed out that no 11th U.S. Circuit Court of Appeals precedent supported the proposition that ‘§ 502(c)(1) penalties are available for a violation of ‘§ 503. Within the Northern District of Georgia, though, the court acknowledged that Brucks v. Coca-Cola, 391 F.Supp.2d 1193 (N.D.Ga. 2005), refused to award fees, while Hamall-Desai v. Fortis Benefits Insurance Co., 370 F.Supp.2d 1283 (N.D.Ga. 2004), approved a fee award.

In examining the basis of both rulings, the court decided the analysis in Brucks was more appropriate; and the court ruled it would not exercise its discretion to award penalties because the information requested did not fall within the scope of the documentation which is the subject of § 502(c)(1), such as summary plan descriptions, annual reports, and other plan documents. However, even if the request did arguably fall within the scope of § 502, the court held it already provided the appropriate remedy by remanding the case to the plan administration.

The majority of cases that have ruled on this issue have reached the same conclusion as this court – Wilczynski v. Lumbermens Mutual Casualty Company, 93 F.3d 397, 402 (7th Cir. 1996); also see, Caffey v. UNUM Life Insur. Co. , 302 F.3d 576 (6th Cir. 2002); Glista v. Unum Life Insur. Co. of America, 2003 U.S.Dist.LEXIS 17457 (D.Mass. 9/30/03), reviewed on other grounds, Glista v. Unum Life Insur. Co. of America, 378 F.3d 113 (1st Cir. 2004), (penalty didn’t apply to request for documents in support of a pre-suit appeal). Accord, Addison v. Hartford Life & Accident Insurance, 2003 U.S.Dist.LEXIS 24286 (E.D.Tenn. 12/12/03).

Nonetheless, the court’s refusal to impose any practical penalty against the plan for its non-compliance with the ERISA regulations is troubling. The Department of Labor has prescribed specific guidelines requiring that plans provide participants with all relevant documents relating to their claims. 29 C.F.R. §2560.503-1(h)(2)(iii); also see 29 C.F.R. §2560.503-1(m)(8) (defines ”relevant” documents). There is no doubt from the report of this case that the defendant failed to comply with the regulation which means, under the terminology contained in the regulation, that the claimant was denied a ”full and fair review” guaranteed by ERISA §503. Contrary to the court’s opinion, though, a remand is not an appropriate remedy since it merely gives the insurance company another chance to come up with another reason to deny a claim and delays the payment of benefits. The district court’s ”solution” also contradicts the Department of Labor’s guideline set forth in 29 C.F.R. §2560.503-1(l), to which the court is required to defer according to Nat’l Cable & Telecommunications Ass’n v. Brand X Internet Services, 125 S.Ct. 2688 (June 27, 2005) (expanding the doctrine of court deference to administrative agency statutory interpretation unless the only permissible interpretation of the statute is to the contrary):

”In the case of the failure of a plan to establish or follow claims procedures consistent with the requirements of this section, a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim.”

The Department of Labor further explained in the preamble to the regulations:

”The proposal contained a provision setting forth the Department’s view of the consequences that ensue when a plan fails to provide procedures that meet the requirements of section 503 as set forth in regulations. The proposal stated that if a plan fails to provide processes that meet the regulatory minimum standards, the claimant is deemed to have exhausted the available administrative remedies and is free to pursue the remedies available under section 502(a) of the Act on the basis that the plan has failed to provide a reasonable claims procedure that would yield a decision on the merits of the claim. The Department’s intentions in including this provision in the proposal were to clarify that the procedural minimums of the regulation are essential to procedural fairness and that a decision made in the absence of the mandated procedural protections should not be entitled to any judicial deference.

”Many commentators representing employers and plans argued that this provision would impose unnecessarily harsh consequences on plans that substantially fulfill the requirements of the regulation, but fall short in minor respects. These commentators suggested that the Department adopt instead a standard of good faith compliance as the measure for requiring administrative exhaustion. Alternatively, they suggested that the Department recognize the judicial doctrine under which exhaustion is required unless the administrative processes impose actual harm on the claimant. Upon consideration, the Department has determined to retain this provision in paragraph (l). Inasmuch as the regulation makes substantial revisions in the severity of the standards imposed on plans, we believe that plans should be held to the articulated standards as representing the minimum procedural regularity that warrants imposing an exhaustion requirement on claimants. In the view of the Department, the standards in the regulation represent essential aspects of the process to which a claimant should be entitled under section 503 of the Act. A plan’s failure to provide procedures consistent with these standards would effectively deny a claimant access to the administrative review process mandated by the Act. Claimants should not be required to continue to pursue claims through an administrative process that does not comply with the law.At a minimum, claimants denied access to the statutory administrative review process should be entitled to take that claim to a court under section 502(a) of the Act for a full and fair hearing on the merits of the claim. Further, the Department believes that it is unlikely that this provision, in and of itself, will result in an increase in benefit claims litigation. Given the limited remedies available in a suit under section 502(a) of the Act, claimants will have little incentive to invoke this provision unless they believe they will be unable to receive a fair consideration from the plan.” 65 FR 70246, 70255-56 (November 21, 2000) (emphasis added).

Clearly, the Department of Labor envisioned that the courts decide and resolve claims where there has been a denial of a full and fair review. The remand in this case abdicated the court of that responsibility and also failed to meet the purpose of the ERISA statute, which Congress clearly set forth was intended is to provide ready access to the courts and to enforce claimant’s rights and remedies. 29 U.S.C. §1002(b).

– See more at: /articles-and-archives/articles-by-mark-d-debofsky/documents-ruling-cuts-access-to-courts-2/#sthash.wna0MN9H.dpuf

This article was initially published in the Chicago Daily Law Bulletin.

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