:: Fourth Circuit Splits With Sixth Circuit On Procedural Violation Remedy

The district court’s reliance on the Sixth Circuit’s decision in Wenner was misplaced, both because it is contrary to the law of this circuit and because that decision’s rationale is flawed. In Wenner, a claimant’s ERISA benefits were ordered reinstated, a substantive remedy, even though the only ERISA violation was a 29 U.S.C. § 1133 procedural violation and the merits of the claim had not been decided.

Gagliano v. Reliance Standard Life
, No. 07-1901 (4th Cir.) (November 18, 2008)

The Fourth Circuit minced no words in this recent ERISA claim for benefits case wherein it reversed the district court with chiding comment on a Sixth Circuit opinion relied upon by the district court. In fairness to the district court, it appears that the clarity of Fourth Circuit authority on the issue was less pronounced than the panel claimed. Nonetheless, the Court very clearly evinced its distaste for the reasoning employed by the Sixth Circuit in Wenner
v. Sun Life Assurance Co. of Canada
, 482 F.3d 878 (6th Cir.
2007).

(The Wenner case is discussed in :: Claims Denials – Denial Letter Must Properly State Reason.)

The Fourth Circuit panel saw the issue in terms of its prior opinion in White v. Provident Life & Accident Insurance Co., 114 F.3d 26 (4th Cir. 1997), a case in which the insurer issued an insurance policy based upon “a legitimate ‘mistake.’” The Court was concerned that a procedural violation not lead to an award of benefits beyond those conferred by the plan, and accepted the defendant’s argument that benefit reinstatement on the facts presented amounted to incorporation of waiver and estoppel principles.

The Wenner decision really does not approach the issue that way. The Sixth Circuit distinguishes cases in which benefits are initially conferred and then improperly terminated (due to procedural errors) and cases in which benefits are denied at the outset. In the former case, the effect of Wenner is to place the claimant’s claims in payment status as they were prior to the defective termination.

The policy issue here is who should bear the cost of the procedural error. Under the Fourth Circuit view, the claimant’s claims remained terminated, albeit though through a process tainted with error, as the case returns for further internal appeals proceedings.

Note: The fact pattern in Gagliano and Wenner involves claims denial for one reason, and on internal appeal, a sustaining of the denial for a different reason. This fact pattern should be distinguished from one in which the reason is the same, but the evidence differs, e.g.,:

Although not phrased as such by plaintiff, plaintiff’s argument can be construed as one that plaintiff is entitled to a further appeal because the final decision was based on new evidence, as opposed to a new reason. That is, because Dr. Thomas’ IME was the last exam to be completed, she did not have an opportunity to respond with her own evidence and thus, she should be entitled to an additional appeal.

This type of argument has been rejected by the courts. In the leading case, Metzger v. UNUM Life Insurance Co., 476 F.3d 1161, 1167 (10th Cir. 2007), the court concluded that documents “generated during the administrative appeal . . . must be disclosed after a final decision on appeal.” [*26] Id. 8 The court held that “[p]ermitting a claimant to receive and rebut medical opinion reports generated in the course of an administrative appeal – even when those reports contain no new factual information and deny benefits on the same basis as the initial decision – would set up an unnecessary cycle of submission, review, re-submission, and re-review” and that such a cycle would increase both the cost and length of the appeals process. Id. at 1166. Based on the strong language from Metzger, it is clear that plaintiff is not entitled to yet another opportunity to submit additional information to rebut the report of Dr. Thomas . . .

Balmert v. Reliance Std. Life Ins. Co., 2008 U.S. Dist. LEXIS 85102 (S.D. Ohio Sept. 22, 2008)

The Metzger fact pattern is discussed in :: Review of Claim Denials (Unit 2): Disclosure Requirements On Administrative Appeal

Correction, Errata, Etc. – A “clear, unambiguous” correction letter, timely issued, may cure the Wenner problem. See, Washington v. Comcast Corp., 268 Fed. Appx. 423 (6th Cir. Mich. 2008) (unpublished)

Additional Contrary Authority – The Seventh Circuit view:

In Halpin, we concluded that an employer-sponsored disability plan had failed to comply substantially with ERISA and its implementing regulations in terminating the plaintiff’s benefits. On the question of remedy, we held that a district court did not abuse its discretion when it ordered the reinstatement of the plaintiff’s benefits as of the date the benefits were terminated. Halpin, 962 F.2d at 697. Furthermore, in other cases, we have suggested [*630] that “retroactive reinstatement of benefits is the proper remedy” when, for instance, a plan’s claims procedure “did not comply with ERISA’s requirements for full and fair review.” Quinn v. Blue Cross & Blue Shield Ass’n, 161 F.3d 472, 477 (7th Cir. 1998) (citing Grossmuller v. Int’l Union, United Auto., Aerospace & Agric. Implement Workers of America, UAW, 715 F.2d 853, 858-59 (3d Cir. 1983)).

Schneider v. Sentry Group Long Term Disability Plan, 422 F.3d 621 (7th Cir. Wis. 2005)