Claim regulations in the Employee Retirement Income Security Act impose deadlines on claimants and plan administrators to submit claims and render claim decisions. Strict deadlines also apply to claim appeals.

Claimants are allowed up to 180 days to submit appeals from denials of disability benefit claims, and if a claimant submits an appeal even a few days late, the plan administrator can reject the appeal as untimely, according to Edwards v. Briggs & Stratton Retirement Plan, 639 F.3d 355, 360 (7th Cir. 2011).

(Full disclosure: The author of this column represented the plaintiff in Edwards v. Briggs & Stratton.)

Conversely, disability benefit plans are required to decide claim appeals within 45 days of receipt, but are permitted a one-time 45-day extension to allow appeals to be decided no later than 90 days after receiving a claimant’s appeal.

According to a recent decision by the 7th U.S. Circuit Court of Appeals, Fessenden v. Reliance Standard Life Insurance Co., 2019 WL 2589122 (7th Cir., June 25), that deadline is final and cannot be extended.

Previously, there was some thought that tardy appeal decisions would be permissible under the doctrine of substantial compliance. However, Fessenden flatly rejects the applicability of substantial compliance to the deadlines incorporated in the ERISA regulations.

When Donald Fessenden appealed his disability benefit denial, Reliance Standard failed to review the appeal and issue a decision within 90 days. Instead, the insurer denied the appeal eight days too late and after Fessenden had already filed suit in federal court. Because the decision was tardy, the court ruled that Reliance Standard was deprived of the benefit of a deferential standard of review, which would otherwise be granted based on plan language granting Reliance Standard discretion to determine a claimant’s eligibility to receive benefits.

As the court explained, “When a plan administrator commits a procedural violation … it loses the benefit of deference and a de novo standard applies.” An exception exists where the administrator “substantially complies” with the procedural requirements “if the violation is relatively minor.”

However, the appeals court held “the ‘substantial compliance’ exception does not apply to blown deadlines.” The court pronounced, “An administrator may be able to ‘substantially comply’ with other procedural requirements, but a deadline is a bright line.” Hence, Reliance Standard forfeited the right to deferential review it would otherwise have received.

Although the normal rule is that an ERISA benefit claimant cannot file suit prior to exhausting all required pre-suit appeals, the ERISA regulations provide that a plan administrator’s failure to adhere to ERISA’s procedural requirements means “a claimant shall be deemed to have exhausted the administrative remedies available under the plan,” 29 C.F.R. §2560.503-1(l) (2002), and is entitled to immediately seek judicial intervention. And when such procedural violations occur, “there is no valid exercise of discretion to which the court can defer,” thus requiring de novo consideration of the benefits sought by the claimant.

Reliance Standard argued that it did not fail to issue a decision on Fessenden’s appeal; its decision was merely late, and only by a small margin, and urged that its tardiness be excused.

The court rejected that position. Although the court refused to abandon the substantial compliance doctrine altogether or accept the plaintiff’s urging that the court follow Halo v. Yale Health Plan, 819 F.3d 42 (2d Cir. 2016), which took such a position, the 7th Circuit removed any remaining doubt as to the applicability of substantial compliance as it relates to deadlines.

The court did acknowledge, though, that recent updates to the ERISA regulations published at 29 C.F.R. §2560.503-1(l)(2)(i) (2018) do eliminate substantial compliance prospectively.

The court explained that 29 C.F.R. §2560.503-1(i)(1)(i), which addresses deadlines for deciding appeals, makes it clear that “‘in no event’ can a deadline be extended further. That language excludes nothing ‘no event, however reasonable or harmless’ from its scope. Substantial compliance with a deadline requiring strict compliance is a contradiction in terms.” (Emphasis in original.) Substantial compliance has been permitted if effective review can still be accomplished, but that would not be applicable to a tardy decision because “there is nothing to review at the time that administrative remedies are deemed exhausted.” (Emphasis in original.)

The 7th Circuit elaborated by observing:

“A claimant is entitled to sue as soon as a claim is deemed exhausted because the administrator has failed to make a timely decision. But Reliance’s position would leave such a claimant in an uncertain position. Should she wait a little bit longer just in case the administrator makes a decision? Or should she go ahead, attempting to frame her case in a way that is responsive to a decision that hasn’t yet- but may still- come? Moreover, an administrator who has more time may get an unfair advantage: it could sandbag a claimant who sues at the point of exhaustion by issuing a decision tailored to combat her complaint.”

The court further pointed out that allowing plan administrators the benefit of substantial compliance would be contrary to Edwards v. Briggs & Stratton Retirement Plan, 639 F.3d at 361-62, where the benefit of substantial compliance was denied to a claimant who sought to invoke that doctrine after submitting a late claim appeal. Since the benefit of substantial compliance was denied to a claimant, the court found no justification for permitting a plan administrator to take advantage of that doctrine, noting, “What’s good for the goose is good for the gander.”

Reliance Standard learned a painful lesson from its tardiness, but it needs to be made clear that the penalty was not a default. The insurer’s right to defend the case on its merits was preserved; it just lost the judicial thumb on the scale in its favor under an arbitrary and capricious standard of review.

If Reliance Standard had a justifiable basis for denying benefits, it still wins the case. The final outcome will be decided on remand.

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

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