A federal appeals court decided that because a disability insurance plan administrator missed a strict ERISA deadline for issuing a benefits decision on review, the correct standard for the court reviewing the denial of benefits to use is “de novo” rather than “arbitrary and capricious.”
In most ERISA claims, when the ERISA Plan delegates discretionary authority to the Plan Administrator to interpret plan provisions, then a denial of benefits is reviewed under the “arbitrary and capricious” standard. This means that the court will only overturn the insurer’s decision if the Plan Administrator acted unreasonably or outrageously in the process it used to deny the claim. Basically, this gives significant deference to the insurer’s exercise of its discretion under the plan to decide the claim.
However, in cases where the de novo standard of review is applied, the court acts as if it were considering the case for the first time, and equal weight is given to the evidence presented by both parties.
Can the plan administrator be a “little bit late” and still be in substantial compliance of a deadline?
Under the new ERISA regulations adopted by the Department of Labor, for cases filed after April 1, 2018, it is possible that a “procedural violation,” such as failing to timely issue a determination after an administrative appeal has been filed, will trigger a “de novo” standard of review where an arbitrary and capricious standard would have been applied. That gives the reviewing court the authority to re-evaluate the evidence and decide the case based solely on the weight of the evidence.
In Fessenden v. Reliance Standard Life Ins. Co., the U.S. Court of Appeals for the 7th Circuit in its June opinion considered the ramifications for Reliance issuing its appeal decision late. Reliance Standard did not timely respond to the Administrative Appeal filed by Fessenden; thus, Fessenden filed an ERISA lawsuit in the U.S. District Court in Indiana seeking disability benefits under the policy based on his chronic fatigue syndrome. Reliance subsequently issued its final denial, but again, the ERISA deadline had passed. After the district court dismissed the case, the 7th Circuit on appeal explained that the plan administrator’s failure to issue a timely decision impacted the standard of review the court applies to its analysis of the case and applied the de novo standard of review.
The appeals court looked at an exception that the court has sometimes applied that asks if the administrator “substantially complied” with the law, whether that level of compliance was close enough to let the standard of review remain arbitrary and capricious. It reasoned that this exception cannot apply to a missed legal deadline, which is a “bright line” rule. The court took note of these factors:
- ERISA deadlines are shorter for disability claims because of the difficult situation of an ill or injured person without income.
- The regulation says that “in no event” can an extension be granted.
- “Substantial compliance with a deadline requiring strict compliance is a contradiction in terms.”
- A legal deadline is a “hard stop” that allows no discretion to be late.
- The court previously held in a different case that when the claimant missed a deadline, the court refused to apply the “substantial compliance doctrine,” so what is “good for the goose is good for the gander.”
Acknowledging that other courts have disagreed, this court’s holding was clear and firm that in this case the standard of review is de novo. It sent the decision back to the lower court to perform a de novo review of the claim.
If your disability insurance carrier has missed a deadline, you may have a strategic advantage. At Disability Insurance Law Group we hold insurance companies to their deadlines and pursue the legal consequences when the carrier does not comply with its legal and contractual obligations. If you have any questions, please contact us at (888) 644-2644.