Defendant seeks dismissal of the action. As the Third Circuit has noted, this should not be a surprising result for ERISA plaintiffs who decide to bring a federal suit rather than pursuing administrative remedies. D’Amico v. CBS Corp., 297 F.3d 287, 293 (3d Cir.2002). Accordingly, I grant Defendant’s motion for judgment on the pleadings dismissing the action.

Gatti v. Western Pennsylvania Teamsters & Employers Welfare Fund, Slip Copy, 2008 WL 794516 (W.D.Pa.) (March 24, 2008)

Failure to exhaust administrative remedies provided the decisive factor for the plan in this claim for benefits dispute. The case highlights the typical analysis that supports a finding for the plan administrator and provides a cautionary tale for those advancing claims for benefits in the face of initial claims denial.

The Facts

The plaintiff was injured in a motor vehicle collision on May 15, 2007. This injury led to a loss of work for a period of nine weeks from May 15 through July 16, 2007.

The plaintiff sought non-occupational accident benefits under the terms of the Pennsylvania Teamsters & Employers Welfare Fund (the “Fund”) in the amount of $200 per week for the nine-week period. While Plaintiff submitted all the necessary documentation of his eligibility, he refused to execute a Subrogation Acknowledgment Form. On this basis, the Fund refused to pay the requested benefits.

The Futility Argument

As a general rule, a plan participant must exhaust administrative remedies before pursuing a suit for judicial review of a claim denial. In this case, the plaintiff argued that exhausting the administrative process would have been futile because the letters from the Fund’s counsel clearly indicated that the Fund would not change its position.

The District Court’s Analysis

Noting that a plaintiff is indeed excused from exhausting administrative procedures under ERISA if it would be futile to do so, the district court turned to the five non-exclusive factors that have a bearing on this issue in the Third Circuit:

(1) whether plaintiff diligently pursued administrative relief;

(2) whether plaintiff acted reasonably in seeking immediate judicial review under the circumstances;

(3) existence of a fixed policy denying benefits;

(4) failure of the insurance company to comply with its own internal administrative procedures; and

(5) testimony of plan administrators that any administrative appeal was futile. Id. at 250. All factors need not weigh equally.

Harrow v. Prudential Ins. Co. of America, 279 F.3d 244, 249 (3d Cir.2002)

The Burden Of Proof

In order to prevail, a plaintiff must provide “a clear and positive showing of futility.” See, Olay v. Hearne, 2007 WL 1520094, at *7 (W.D.Pa. May 21, 2007) (“case law requires more than a common sense conclusion about what one thinks will happen; the cases require evidence of a clear and positive showing of futility”), aff’d, 2007 WL 4468664 (3d Cir. Dec.21, 2007).

The Analysis

The court combined analysis of the first two factors, but found each weighed against the plaintiff:

With respect to the first and second factors, whether Plaintiff diligently pursued administrative relief and acted reasonably in seeking immediate judicial review, I find that these factors weigh against a finding of futility.

Here, the Plaintiff had initiated the appeals process, and correspondence from the Fund’s counsel indicated that a hearing would be held sometime in the next few weeks. This administrative process was neither onerous nor overly time-consuming. Compare Dellavalle, 2006 WL 83449, at *6 (plaintiff who filed suit after his appeal of the denial of benefits was also denied failed to exhaust administrative remedies where the plan called for a denial of claim followed by two appeals and voluntary third appeal).

Instead of waiting the limited additional time required to exhaust the appeal process, Plaintiff decided to abandon the appeal in favor of commencing this action.

I do not consider such action reasonable. See Bennett v. Prudential Ins. Co., 192 Fed.Appx. 153, 156 (3d Cir.2006) (affirming district court decision not to apply futility exception where the plaintiff received two letters from the defendant denying his claim, but failed to exhaust the plan’s appeal process).

On the third factor, the plaintiff also had a failure of proof:

Plaintiff relies heavily on the third factor, the existence of a fixed policy denying benefits. Plaintiff submits no evidence of a fixed policy, apart from the letters exchanged with counsel for the Fund. This does not fulfill the court’s requirement for a “clear and positive showing of futility.” See Regional Employers’ Assurance Leagues Voluntary Employees’ Beneficiary Assoc. Trust v. Sidney Charles Markets, Inc., 2003 WL 220181, at *6 (E.D.Pa. Jan.29, 2003) (letter from plan’s counsel stating plan’s position that “no person is entitled to a benefit if their employer’s right to participate in the VEBA plan has been terminated” does not establish a clear and positive showing of futility where letter also referred the plaintiff to the administrative procedure for determining the validity of the claim for benefits); Sultan v. Lincoln Nat’l Corp., 2006 WL 1806463, at *10 (D.N.J. June 30, 2006) (finding no evidence of fixed policy despite exchange of ten letters between plaintiff’s counsel and counsel for the plan, several of which informed plaintiff that she was not entitled to benefits).

The fourth and fifth factors also undercut the Plaintiff’s assertion of futility.

While Plaintiff conclusorily argues that Defendant did not comply with its own administrative procedures (Pl. Br. at 2-3), the Complaint alleges that Plaintiff “has submitted all necessary documentation of his eligibility, including medical documentation.” (Complaint, at ¶ 13.) The correspondence further indicates that Plaintiff appealed the denial of benefits, and that the Plan recognized the appeal and was scheduling a hearing in conformance with the Plan’s procedures. (Pl.Resp., Ex. A-1.) Nor is there any testimony from a plan administrator that the appeal would have been futile.

Note: The court held that the exhaustion requirement would be imposed regardless of whether the plan required exhaustion by its terms:

Accordingly, regardless of whether the review process set forth in the Plan was expressed as a precondition to commencing a lawsuit, well-established Third Circuit case law requires exhaustion of any administrative remedies prior to instituting an action under ERISA § 502(a). See, e.g., Carter v. U.S. Life Ins. Co., 2007 WL 709331, at *1 (D.N.J. Mar.5, 2007) (rejecting the plaintiff’s argument that he was not required to exhaust his administrative remedies under ERISA “because the policy document itself did not specifically require it”).

The Exhaustion Of Remedies Rationale – As noted above, a federal court will generally not entertain an ERISA claim unless the plaintiff has exhausted the remedies available under the plan.” Harrow v. Prudential Ins. Co. of America, 279 F.3d 244, 249 (3d Cir.2002) (quoting Weldon v. Kraft, Inc., 896 F.2d 793, 800 (3d Cir.1990)).

“Courts require exhaustion of administrative remedies to help reduce the number of frivolous lawsuits under ERISA; to promote the consistent treatment of claims for benefits; to provide a nonadversarial method of claims settlement; and to minimize the costs of claims settlement for all concerned.” Id. “Moreover, trustees of an ERISA plan are granted broad fiduciary rights and responsibilities under ERISA and implementation of the exhaustion requirement will enhance their ability to expertly and efficiently manage their funds by preventing premature judicial intervention in their decision-making process.” Id.;

see also, Engers v. AT & T, 428 F.Supp.2d 213, 227 (D.N.J.2006) ( “when a plan participant claims that he or she has unjustly been denied benefits, it is appropriate to require participants to first address their complaints to the fiduciaries to whom Congress, in Section 305, assigned the primary responsibility for evaluating claims for benefits”).

Further, “exhaustion of the administrative remedies creates a record of the plan’s rationales for denial of the claim.” Dellavalle v. The Prudential Ins. Co. of America, 2006 WL 83449, at *5 (E.D.Pa. Jan.10, 2006).

Practice Pointer – The array of defenses available to the plan fiduciary should be well understood by claimant and fiduciary alike. Given the variety of claims and limited time for response, the protocols for claim presentation and review should be the subject of regular due diligence effort through seminars and staff/paralegal training.

Also, note that the exhaustion rule will typically not apply to claims of fiduciary breach or Section 510 interference claims.  The latter have their share of problems simply based upon the proof required, but the former may serve as a backstop if the claim for benefits is subject to a failure to exhaust administrative remedies defense.

See also – For more on this issue, see :: Tenth Circuit Says Exhaustion Of Administrative Remedies Requirement “Judicial”, Not “Contractual” Requirement

Generally, a district court may waive exhaustion only under “two limited circumstances,” when (1) the administrative process would be futile, or (2) the remedy in the benefit plan is inadequate. McGraw v. Prudential Ins. Co. of Am., 137 F.3d 1253, 1263 (10th Cir.1998). In order to meet the futility exception, a plaintiff must show that her claim would be denied, not just that she thinks it is unlikely that the claim would succeed. See Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir.1996) (requiring evidence that employer would have rejected a request for short-term disability benefits before plaintiff could pursue ERISA retaliation claim).

Lane v. Sunoco, Inc., Slip Copy, 2008 WL 41066 (C.A.10 (Okla.)) (January 2, 2008)