The Second Circuit has held that a participant was deemed to have exhausted a benefit plan’s administrative remedies and could file a lawsuit because the plan administrator failed to provide a final determination within the time required under ERISA’s claim procedures. (In general, participants must exhaust all available plan procedures before filing a lawsuit.) The participant’s original claim for disability benefits was denied in a letter stating that he had not submitted sufficient proof of loss for the plan administrator to evaluate the existence of a disability. The letter also indicated that the participant could appeal the decision, that the administrator was required to provide a final decision within 45 days of the appeal, that the 45-day period could be extended with prior written notice, and that the participant could file a lawsuit if he disagreed with the decision on appeal. The participant appealed, and when 46 days passed without a denial or grant of benefits (or an extension of the review time) from the administrator, he filed this lawsuit. The trial court dismissed the suit on the basis that the participant had failed to exhaust his plan remedies because his claim was still under review by the administrator when the suit was filed.
The appellate court reversed the trial court’s decision, rejecting the administrator’s argument that a letter sent to the participant 12 days after his appeal “overturning” the original denial and indicating that the matter had been forwarded to its claim department for further consideration was a timely decision on review. According to the court, ERISA required a final grant or denial of benefits within 45 days of the participant’s appeal (absent special circumstances requiring an extension), and the letter was not a final benefit determination. Consequently, the participant was deemed to have exhausted his plan remedies and could file suit. The court sent the case back to the trial court for further proceedings.
EBIA Comment: The decision in this case reminds us of the importance of establishing and following claims procedures that are consistent with ERISA’s requirements. Failure to do so may result in a claimant being allowed to file a lawsuit against the plan without having exhausted the plan’s administrative remedies, and potential loss of the favorable arbitrary and capricious standard of review. For more information, see EBIA’s ERISA Compliance manual at Sections XXXV.B.3 (“Consequences of Noncompliance”), XXXV.E (“Timelines for Disability and Other Non-Health Decisions”), and XXXVI.B (“Exhaustion of Plan Administrative Claims Procedures”). See also EBIA’s 401(k) Plans manual at Section XXXVII.C (“Exhaustion of Plan Administrative Claims Procedures”) and EBIA’s Self-Insured Health Plans manual at Section XXVI.J.1 (“Exhaustion of Plan Administrative Claims Procedures”).
Contributing Editors: EBIA Staff.