By law, ERISA-controlled long-term disability plans must provide an internal appeal process, and the law is clear that claimants must tap into that process before they will be granted access to the courts.  Except in rare circumstances, a claimant who elects to go straight to court, bypassing an available internal appeal process, will quickly be shown the door. No doubt because internal appeals have been embossed with that critical “gatekeeper” function, Department of Labor regulations establish a deadline for insurance companies to decide internal appeals, i.e., 45 days with the possibility of a 45-day extension where “special circumstances” exist.  See 29 C.F.R. § 2560.503-1(i)(1)(i), (3)(i).  Absent a valid extension, once 45 days have elapsed without a decision (known under the regulations as a “benefit determination on review”), a claimant is at liberty to start suit.

So what happens when an insurance company issues a decision within 45 days, but the decision, while purporting to resolve the appeal in the claimant’s favor, nevertheless indicates that the claimant’s eligibility for benefits will have to be evaluated separately and at a later point in time?  According to a Second Circuit decision handed down on June 7, 2022, an appeal decision that does that does not qualify as a “benefit determination on review,” meaning that once the 45-day deadline passes, the claimant is authorized to commence suit.

Decisions like this draw their support from a core premise, well-grounded in the caselaw, that the requirements (and there are lots of them) imposed on disability insurance companies under the regulations are to be strictly construed (meaning that strict compliance is required).  And as this decision aptly demonstrates, insurance companies that stray from the requirements do so at their own peril.

McQuillin v. Hartford Life & Accident Ins. Co., 36 F.4th 416 (2d Cir. 2022)

Many an ERISA lawsuit filer has had her suit summarily tossed on the ground that she failed to pursue an available administrative remedy (i.e., an internal appeal) prior to resorting to litigation.  It’s a powerful roach bomb-like defense, one that allows insurers and plan administrators to assert without a hint of guilt that they’re off the hook regardless of how blatantly wrong the subject benefit determination was, or how improperly they behaved during the claim review process.

On some level it’s fair to say that there’s nothing unique about that.  After all, statutes of limitations (legislative pronouncements that place limits on how long one can wait before filing suit) have the potential to produce the same devastating results.  Still, there’s an important difference between a statute of limitations and the administrative remedy exhaustion requirement.  The former is invariably memorized in a statute, while the latter is not.

To be sure, ERISA is quite clear in mandating that claimants be given access to an internal review process that’s “full and fair.”  But nowhere in the ERISA statute is it written that claimants must avail themselves of the opportunity under penalty that if they do not, the courthouse doors will forever be closed to them.

How, then, did we get here?  How, if the ERISA statute is silent on the subject, are ERISA claimants met with an all but unassailable requirement of pre-suit administrative remedy exhaustion?  Via that other incubator of rules and procedures that guide and control many aspects of life: the judiciary, no doubt acting out of a desire to reduce the number of claims that find their way into court. 

And the fact that the requirement has the judiciary as its progenitor is the impetus behind a growing legion of jurists who, while not ready to cast the requirement aside, have nevertheless done little to disguise their distaste for it.  Case in point: a decision handed down by the Sixth Circuit Court of Appeals on March 31, 2020.  In it, the court deemed it insufficient for a denial/termination letter to describe the internal appeal process; for a court to enforce a requirement to pursue administrative remedies, both the appeal process in general, and its gatekeeper role in particular, must be described in clear terms in the plan itself.  In other words, according to the Sixth Circuit, a litigant should not have her ERISA case dismissed for failing to exhaust where the plan fails to spell out the internal appeal process or to inform the claimant that her access to court hinges on her first taking a crack at it.

The lesson to be derived from all of this?  Don’t give up just because you never filed an internal appeal and your time to do so has expired.  Speak to a knowledgeable attorney who can help you discern what rights you retain.

Wallace v. Oakwood Healthcare, Inc. 954 F.3d 879 (6^th Cir. 2020)

Accidents and illnesses that are severe enough to trigger a long-term disability (“LTD”) claim commonly lead to another development: involuntary employment termination.  Federal law, in particular the Family and Medical Leave Act of 1993, affords a level of job protection, but it’s not universally applicable (companies with fewer than 50 employees are exempt) and, in any event, the rights that it affords are not without limits.

Employment termination (whether voluntary or involuntary) in and of itself poses no challenge for an LTD claimant; as long as disability began while the claimant was “actively at work,” and provided that the claim is submitted on a timely basis, a subsequent change in one’s status from employed to terminated should be of no moment.  So if that’s the case then what’s the problem?

The problem is that sometimes when an employee is asked to leave, particularly when severance benefits are in the picture, he or she will be handed a separation agreement that spells out the terms under which the parties shall endeavor to amicably part ways.  And almost invariably, buried somewhere deep in the agreement, there will appear a broad and binding release of all claims against the employer and (typically) its subsidiaries and affiliated and related entities.

When Kim Keister, a stroke victim whose claim for LTD benefits was denied, was asked by his employer (AARP) to sign such an agreement, he had no idea that by doing so he would be foreclosed from bringing an ERISA lawsuit against the AARP Benefits Committee (plan administrator of AARP’s LTD plan).  Unfortunately for him, however, that’s exactly what happened.  Deeming the agreement broad enough to cover not only AARP but also the AARP Benefits Committee, and comprehensive enough to cover his ERISA claim, Judge Ketanji Brown Jackson of the United States District Court for the District of Columbia dismissed Mr. Keister’s case.

As should be evident from Mr. Keister’s experience, if you’re a disability claimant whose been asked to sign an employment separation agreement, the need to consult with an experienced ERISA attorney cannot be overstated . . . lest you run the risk of ending up on the wrong side of the courthouse door, sitting on your keister.

Keister v. AARP Benefits Committee, 410 F. Supp. 3d 244 (D.D.C. 2019)

The “standard of review” to be applied by a federal district court presiding over an ERISA “wrongful denial of benefits” case is a critical threshold consideration.  Will the court review the determination anew without granting any leeway to the administrator (de novo review), or will it defer to the administrator by agreeing not to interfere absent proof that its claims handling was arbitrary or capricious (deferential review)?  In most circuits, the issue (at least initially) boils down to one straight-forward consideration: does the plan contain language granting discretionary authority to the administrator.  If it does, review deferentially.  If it does not, review de novo.

Since 1991, however, the Fifth Circuit has approached things a bit differently.  There, as result of Pierre v. Connecticut General Life Ins. Co./Life Ins. Co. of N. America, 932 F.2d 1552 (5th Cir. 1991), the rule is that factual determinations (as opposed to plan interpretations) are reviewed deferentially even when the plan in question does not grant discretionary authority.

The Fifth Circuit’s outlier status on this issue has put claimants in Louisiana, Mississippi and Texas at a severe disadvantage, and a recent decision from that court does little to downplay its frustration with that situation.  Whether a remedy in the form of en banc reconsideration or Supreme Court review is in the offing is anyone’s guess, but we will be maintaining a watchful eye.

Ariana M. v. Humana Health Plan of Texas, 854 F.3d 753 (5th Cir. 2017)

UPDATE: On July 10, 2017, the Fifth Circuit granted reconsideration en banc, meaning that the case will now go before all of the judges of the Fifth Circuit.  Stay tuned for the outcome of that event.

FURTHER UPDATE: On March 1, 2018, the Fifth Circuit (sitting en banc) overruled Pierre and thus aligned itself with its sister Circuit Courts of Appeal.  See Ariana M. v. Humana Health Plan of Texas, 884 F.3d 246 (5th Cir. 2018) (en banc).  Now in the Fifth Circuit, as elsewhere, there is no discretionary review absent plan language delegating discretionary authority.

ERISA-controlled health insurance plans often contain a provision that states, in sum and substance, that if the insured recovers money from a third-party (like the person responsible for causing the event that gave rise to the insured’s injuries), then he or she must reimburse the insurer for the funds that it expended toward the insured’s medical care.  In Thurber v. Aetna Life Ins. Co., 712 F.3d 654 (2d Cir. 2013), the Second Circuit held that a health insurer’s suit to enforce its rights under such a provision, filed under ERISA, can proceed notwithstanding the fact that by the time suit was filed, the funds had “dissipated” (that is, they neither remained in the insured’s possession nor were used to purchase traceable items).

On January 20, 2016, the United States Supreme Court abrogated Thurber, holding (by an 8-1 margin) that when funds otherwise subject to a lien of this nature are used to purchase nontraceable items (like food and travel), then suit under ERISA is impermissible.  That is so, reasoned the Court, because the relevant ERISA provision only authorizes suit for “equitable relief,” and when funds have been used to acquire nontraceable items, a suit to recover on the lien is one against the insured’s general assets (which makes it a claim for legal, not equitable, relief).

Montanile v. Board of Trustees of the Nat’l Elevator Indus. Health Benefit Plan, 136 S. Ct. 651 (2016)