If your long term disability (LTD) benefits are denied or terminated, the denial letter will include a discussion of your right to bring an appeal or lawsuit. A lawsuit might seem like a better option. After all (you may think), how likely is it that the insurance company will voluntarily overturn its decision to deny your benefits? However, if you received your LTD benefits through your employer (and your employer is neither a governmental organization nor religious entity), your LTD benefits are likely subject to the federal Employee Retirement Income Security Act of 1974 (“ERISA”). Under ERISA, you must appeal a denial of benefits by the stated deadline, or you risk being barred from later filing suit.
There are some exceptions to the so-called “exhaustion” requirement, including if your LTD plan denies your benefits without following the proper procedures, or if you can prove submitting an appeal would be futile. Also, if the LTD plan fails to make a timely decision on your appeal, you need not wait to file suit but instead may proceed directly to court under a “deemed exhaustion” theory. This article will examine ERISA’s exhaustion requirement, and the exceptions to that requirement, to help you determine when to file suit after a denial of LTD benefits.
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Must I Appeal a Denial of LTD Benefits Prior to Going to Court?
If your LTD benefits are subject to the federal ERISA statute, you must appeal the denial of benefits prior to filing suit, subject to a narrow set of exceptions (discussed below). Nothing in the plain language of the ERISA statute mandates that a plan participant must exhaust his or her appeals prior to filing suit; rather, the exhaustion requirement is a judicial creation based on ERISA’s “full and fair review” clause (29 U.S.C. § 1133). See, e.g., Edwards v. Briggs & Stratton Ret. Plan, 639 F.3d 355, 360 (7th Cir. 2011) (“[B]ecause ERISA directs employee benefit plans to provide adequate written notice of the reasons for denials of claims by plan participants and to create procedures for the review of such denials of claims, we have interpreted ERISA as requiring exhaustion of administrative remedies as a prerequisite to bringing suit under the statute.”).
What Happens if I Fail to Appeal a Denial of LTD Benefits?
Most LTD plans allow up to 180 days to appeal a denial of LTD benefits. If the appeal deadline has already passed, you should write to your LTD plan administrator to see if it will accept a late appeal, citing any extenuating circumstances that may exist. Note that the U.S. Department of Labor has extended the deadline for ERISA claim appeals by up to one year following the original appeal deadline for so long as the country remains in a state of national emergency due to the coronavirus pandemic.
If your LTD plan refuses to accept a late appeal, you should still file suit but be aware that the plan may raise failure to exhaust administrative remedies as an affirmative defense. In the long term disability context, courts have recognized two exceptions to the exhaustion requirement: 1) if the plan denied meaningful access to its review procedures; and 2) if an appeal would be futile.
Denial of Meaningful Access
You may be excused from ERISA’s exhaustion requirement if you can show that you were denied meaningful access to a “full and fair review.” See 29 U.S.C. § 1133. An LTD plan denies meaningful access to its review procedures when it fails to comply with the notice and disclosure requirements mandated by the ERISA claims regulations (29 C.F.R. § 2560.503-1). The claims regulations require that you be provided:
- Written notice of an adverse benefit determination within 45 days of the application, though the plan may extend that deadline twice for up to 30 days, respectively;
- Citation to the plan language relied upon in denying your claim;
- A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary;
- A description of your appeal rights, including your right to bring a lawsuit; and
- A copy of your claim file, upon request and free of charge.
In addition, the LTD plan must comply with ERISA’s timing requirements regarding notification of an adverse benefit determination. If an LTD plan fails to comply with the forgoing requirements, the plan participant may be excused from ERISA’s exhaustion requirement, unless the failure amounted to a technical or de minimus violation. See, e.g., Baptist Mem’l Hosp.–DeSoto Inc. v. Crain Auto. Inc., 392 Fed. Appx. 288, 293 (5th Cir. 2010) (ruling LTD plan failed to “substantially comply” with ERISA claims regulations where it failed to notify plan participant in writing of benefits denial).
You may be excused from ERISA’s exhaustion requirement if you can show that an appeal would have been futile. To establish futility, a claimant must show that “it is certain that [her] claim will be denied on appeal, not merely that [she] doubts that an appeal will result in a different decision.” Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir. 1996) (quoting Smith v. Blue Cross & Blue Shield United of Wis., 959 F.2d 655, 659 (7th Cir. 1992). In other words, the “mere fact that [an insurer] might have been likely to deny the claim does not excuse exhaustion.” See Ruderman v. Liberty Mut. Group, Inc., 1:20-CV-945, 2021 WL 827693, at *3 (N.D.N.Y. Mar. 4, 2021).
Furthermore, the claimant must make a “sincere attempt to appeal the denial or otherwise put defendants on notice that there was a dispute.” See id. In Ruttenberg v. U.S. Life Ins. Co. in City of New York, a subsidiary of Am. Gen. Corp., 413 F.3d 652, 662–63 (7th Cir. 2005), the claimant was excused from exhausting his administrative appeals based on futility only after the defendant spent 18 months adjudicating his disability claim and, during the course of its review, contested every opinion that was favorable to the claimant. Thus, the bar for establishing futility is a high one.
How Long Must I Wait for a Decision on My LTD Appeal?
Once you appeal a denial of LTD benefits, the plan administrator has 45 days to decide your appeal, but it can extend that deadline by an additional 45 days (for a total of no more than 90 days) if the plan administrator determines that “special circumstances” exist that require an extension of time for the processing of the claim, provided the plan requests the extension before the expiration of the initial 45-day period. See 29 C.F.R. § 2560.503-1(i)(1), (i)(3). (Note that different rules apply to multiemployer plans and those with a committee or board of trustees.)
The plan administrator may also “toll” the 45/90 day deadline “due to a claimant’s failure to submit information necessary to decide a claim,” such as medical records or other information necessary to the plan’s review. Id. at § 2560.503-1(i)(4).
If you appealed the denial of your LTD benefits and the plan has exceeded the 45/90-day deadline described above, and the plan has no valid excuses for the delay, you may be able to proceed directly to court under a “deemed exhaustion” theory. See 29 C.F.R. § 2560.503-1(l)(1). The “deemed exhaustion” rule provides that a claimant may be excused from ERISA’s exhaustion requirement if the plan fails to comply with the ERISA claims regulations, though not if the violation was for “good cause” or “occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant.” Id. In the Second and Seventh Circuits, an ERISA plan administrator who fails to issue a timely decision on an appeal runs the risk not only of having the claimant file suit under a “deemed exhaustion” theory, but also of losing its discretionary authority. See Halo v. Yale Health Plan, 819 F.3d 42, 53 (2d Cir. 2016) (stripping plan administrator of discretion for tardy decision); Fessenden v. Reliance Standard Life Ins. Co., 927 F.3d 998, 1006-07 (7th Cir. 2019) (same).
A Caution About Heimeshoff
Although an ERISA plan participant has an obligation, in most circumstances, to exhaust his or her appeals prior to filing a lawsuit, a participant must also be mindful of the statute of limitations. ERISA does not contain a statute of limitations for a suit for benefits under 29 U.S.C. § 1132(a)(1)(B); thus, courts borrow the most analogous statute of limitations from state law (usually breach of contract). However, most plans contain a contractual limitations period that is shorter than state law and lasts three years or less — and sometimes as little as one year or 60 days from the denial of benefits.
In Heimeshoff v. Hartford Life & Acc. Ins. Co., 571 U.S. 99, 113 (2013), the Supreme Court ruled that a three-year contractual limitations period is reasonable and is not “tolled” (i.e., suspended) while an appeal is pending. The Court left open the possibility that a shorter statute of limitations could be struck down as unreasonable. See id. Thus, if you are engaged in an LTD appeal proceeding, make sure you calendar the statute of limitations date and, as the date approaches, discuss with an attorney whether a protective filling of a lawsuit is necessary to avoid having your case barred due to the statute of limitations.
If your LTD benefits are denied, you may be tempted to file a lawsuit, but unless your benefits are exempt from the federal ERISA statute, you must first appeal the denial of benefits or you run the risk of later having your lawsuit dismissed for failure to exhaust administrative remedies. There are two exceptions to the exhaustion requirement in the LTD context, denial of meaningful access and futility, but those exceptions are difficult to prove and narrowly construed. If your LTD benefits have been denied, contact the attorneys at DeBofsky Sherman Casciari Reynolds P.C. today to discuss your options.
- Some very old LTD plans only allow 60 days to appeal a denial of LTD benefits, which was the deadline prior to the 2000 amendments to the ERISA claims regulations, which became effective in 2002.
- A third exception to the exhaustion requirement exists if the appeal would have resulted in “irreparable harm,” though this exception applies more often in the health insurance context. See, e.g., Turner v. Fallon Cmty. Health Plan, Inc., 127 F.3d 196, 200 (1st Cir. 1997) (excusing claimant for failing to appeal where she suffered from metastasized breast cancer).