:: Internal Appeals Processes Require Strict Compliance By Claimants

n support of its Motion for Summary Judgment, Unum argues that Smith cannot maintain a cause of action under ERISA because she failed to exhaust her administrative remedies. On this issue, the United States Court of Appeals for the Fifth Circuit has held: “This court requires that claimants seeking benefits from an ERISA plan must first exhaust available administrative remedies under the plan before bringing suit to recover benefits.” Bourgeois v. Pension Plan for Employees of Santa Fe Int’l Corps., 215 F.3d 475, 479 (5th Cir. 2000)(citing Denton v. First Nat’l Bank of Waco, 765 F.2d 1295, 1300 (5th Cir. 1985)).

Smith v. UNUM Life Ins. Co. of Am., 2008 U.S. Dist. LEXIS 80638 (S.D. Miss. Oct. 10, 2008)

Two important judicial doctrines converge in this case, both to the detriment of the plaintiff.  First, the court finds that the plan administrator “substantially complied” with the claims regulations; second, the court applied the failure to exhaust administrative remedies defense, rebuffing the plaintiff’s justification based upon futility.  The caselaw continues to demonstrate that claimants must carefully attend to all requirements of internal appeals processes and resolve any close cases with further application to the appeals avenues offered under the plan.

Smith involved a denied disability claim that apparently followed a denied workers’ compensation claim.   The disability claim became ensnarled in a dispute over who had to provide clarification – the disability carrier as to the reason for the denial or the claimant as to the circumstances of her accident.

The Factual Dispute

Though the compensatory regimes divide categorically into occupational and non-occupational fields, human experience is not as easily deconstructed.  Here, it appears that the claimant’s physician may have shown some equivocation in the cause of the accident at least one stage of the proceedings.  He attributed the accident to “uncertain etiology”.

Matters eventually reached the point of impasse:

On March 15, 2005, Unum sent Smith a letter informing her: “As you may recall, we previously requested additional information that was necessary to evaluate your claim for disability benefits. Since we did not receive the requested information within the specified time period, regrettably, we must close your file…” Id., Ex. C, at 141-43. The letter again cites to the policy provision that requires a claimant to provide information regarding the time of disability, place of disability,  circumstances of disability, nature of disability, and name and address of employee.

The Claims Regulations

After the claimant sued in state court, the case was removed and the issues consolidated in a motion for summary judgment.  The claimant contended that the carrier failed to comply with the claims regulations.

The Fifth Circuit has recognized that “ERISA provides certain minimal procedural requirements upon an administrator’s denial of a benefits claim”, which are “set forth in 29 U.S.C. § 1133 and the regulations promulgated by the Department of Labor thereunder.” Wade v. Hewlett-Packard Dev. Co. LP Short Term Disability Plan, 493 F.3d 533, 539 (5th Cir. 2007).

The district court ruled that the carrier had substantially complied with the regulations,noting the Fifth Circuit’s view on the issue:

Challenges to ERISA procedures are evaluated under the substantial compliance standard. Lacy v. Fulbright & Jaworski, 405 F.3d 254, 256-57 & n.5 (5th Cir. 2005). This means that the “technical noncompliance with ERISA procedures will be excused so long as the purpose of section 1133 has been fulfilled.” Robinson v. Aetna Life Ins., 443 F.3d 389, 393 (5th Cir. 2006). The purpose of section 1133 is “to afford the beneficiary an explanation of the denial of benefits that is adequate to ensure meaningful review of that denial.” Schneider v. Sentry Long Term Disability, 422 F.3d 621, 627-28 (7th Cir. 2005).

The “substantial compliance” test also “considers all communications between an administrator and plan participant to determine whether the information provided was sufficient under the circumstances.” Moore v. LaFayette Life Ins. Co., 458 F.3d 416, 436 (6th Cir. 2006). “All communications” may include oral communications. White v. Aetna Life Ins. Co., 341 U.S. App. D.C. 155, 210 F.3d 412, 417 (D.C. Cir. 2000)(citing Heller v. Fortis Benefits Ins. Co., 330 U.S. App. D.C. 39, 142 F.3d 487, 493 (D.C. Cir. 1998)). Wade, 493 F.3d at 539.

Thus, “Section 1133 and its corresponding regulations require that the Plan: (1) provide adequate notice; (2) in writing; (3) setting forth the specific reasons for such denial; (4) written in a manner calculated to be understood by the participant; and (5) afford a reasonable opportunity for a full and fair review by the administrator.” Id. at 540.

“Taken as a whole”, the court held that UNUM had sufficiently advised that she was required to provide information regarding her claimed disability – including the time, place, circumstances, and nature of the disability – to have her claim evaluated.

The Futility Doctrine

The claimant’s invocation of the futility doctrine fared no better than her challenge based upon the regulations.  The court stated the Fifth Circuit rule as follows:

Smith also argues that she was excused from exhausting her administrative remedies because an appeal of the decision regarding her claim for short term disability benefits would have been futile.

The Fifth Circuit has “recognized an exception to the affirmative defense of failure to exhaust administrative remedies when such attempts would be futile.” Bourgeois, 215 F.3d at 479 (citing Hall v. National Gypsum Co., 105 F.3d 225, 232 (5th Cir. 1997)). See also Ogden, 367 F.3d at 336 n.61.

The Fifth Circuit, however, has also recognized that the “failure to show hostility or bias on the part of the administrative review committee is fatal to a claim of futility.” McGowin v. ManPower Int’l, Inc., 363 F.3d 556, 559 (5th Cir 2004). See also Denton, 765 F.2d at 1302 (finding that the futility exception to the exhaustion requirement did not apply in a case in which there was no showing that the administrative review committee was hostile or bitter toward the plaintiff).

The court was dissatisfied with the plaintiff’s showing on this point.

Smith has not presented any evidence to show bias, hostility, or bitterness. Instead, she argues that appealing the administrative decision would have been futile because Unum had already ignored the medical findings of her treating physicians and denied her claim, thereby evidencing a predisposition to rejecting her claim. The Court first finds this argument is not supported by the record.

Finding that the plaintiff failed to exhaust her administrative remedies through appeal, and likewise failed to offer a justification under the futility doctrine, the court granted the carrier’s motion for summary judgment.

Note:  Since the failure to exhaust administrative remedies enjoys great favor with the courts, claimants have little choice but to persevere through the appeals process.   Repeated requests for clarification cannot be ignored.

Furthermore, another recent case, Wiggins v. Life Ins. Co. of N. Am., 2008 U.S. Dist. LEXIS 80500 (E.D. Wash. Oct. 10, 2008), shows that the denial of an appeal may be insufficient grounds to file suit without further recourse to internal appeals processes.  In that case, the attorney appealed a denial and the appeal was denied in a letter that offered a further appeal.  The attorney then wrote the plan administrator, stating:

Please be advised Ms. Wiggins does not wish to seek another written request for review with the Life Insurance Company of North America. In addition, there is no new documentation, other than what has previously been forwarded to the insurance company.

The district court found this insufficient exhaustion of administrative remedies, stating:

It is well established that a person seeking benefits under an ERISA plan “must avail himself or herself of a plan’s own internal review procedures before bringing suit in federal court.” Diaz v. United Agric. Employee Welfare Benefit Plan & Trust, 50 F.3d 1478, 1483 (9th Cir.1995) (citing Amato v. Bernard, 618 F.2d 559, 566-68 (9th Cir.1980)). Ms. Wiggins concedes she did not do so. Despite making this concession, she urges the Court not to dismiss her complaint. She argues that requesting further review would have been futile because LINA had repeatedly denied her appeals for benefits, both short- and long-term, and she had no new medical information with respect to her condition.

Futility is one of the exceptions to the exhaustion requirement. 50 F.3d at 1485. However, the fact a plan administrator has repeatedly denied an applicant’s appeals does not, by itself, excuse the applicant from exhausting her administrative remedies. Id. In order to establish futility, the applicant must demonstrate the administrator has prejudged the evidence and the outcome of the appeal is predetermined. See id. at 1486. Ms. Wiggins bears the burden [*5] of production on this issue. See id. at 1485-86. The defendants are entitled to summary judgment unless she identifies evidence from which a rational fact-finder could resolve this issue in her favor. She has failed to carry her burden. As the record now stands, a rational fact-finder could not find that LINA representatives had prejudged the evidence and, thus, the opportunity for internal review that Ms. Bedikian described in her letter of May 9th was illusory because the appeal was certain to be denied.

The Claims Regulations – Section 1133, at issue in Smith on the substantial compliance issue,  provides:

In accordance with regulations of the Secretary, every employee benefit plan shall –

(1) provide adequate notice in writing to any participant or beneficiary whose claim for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and

(2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim.

29 U.S.C. § 1133. The applicable federal regulations in force at the time Smith’s claim [*16] was denied provide:

The notification shall set forth, in a manner calculated to be understood by the claimant –

(i) The specific reason or reasons for the adverse determination;

(ii) Reference to the specific plan provisions on which the determination is based;

(iii) 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;

(iv) A description of the plan’s review procedures and the time limits applicable to such procedure …

29 C.F.R. 2560.503-1(g)(1)(i)-(iv)(2000)