The Employee Retirement Income Security Act of 1974 (ERISA) establishes the minimum standards for most voluntary private pension and health plans. Among ERISA's many requirements, plan providers and fiduciaries must provide procedures for deciding claims and appealing decisions. Once all appeals are exhausted, the claimant may be able to seek relief in court.
Plan fiduciaries are generally given broad deference in their claim decisions. The court will not review the claim unless the denial was arbitrary and capricious, a highly deferential standard of review. However, in cases where the plan fiduciary did not follow the plan procedures or failed to provide a timely response, the court may choose to review the claim “de novo,” and may end up reversing the plan provider's decision.
In the recent Ninth Circuit ERISA case of Smith v. Reliance Standard Life Insurance Company, the Court of Appeals vacated the district court's order which denied claimant Gregory Smith's claim for short-term disability benefits. The Court found a procedural violation in denying the claim could be used as a factor in determining whether a plan administrator abused its discretion.
“On remand, the district court should determine whether the procedural violation caused Smith substantive harm such that de novo review of Reliance's benefits determination is appropriate.” If the district court finds substantial harm, they could review the claim de novo. If there was no substantive harm to Smith, the court could apply the more deferential “abuse of discretion” standard.
In a 2016 Second Circuit ERISA case, Halo v. Yale Health Plan, the court found in favor of the claimant. The court found that when a plan fiduciary did not provide a timely decision on a claim, the fiduciary should not benefit from the delay with a deferential review. Unless the plan fiduciary could show the failure to follow procedures was “inadvertent” and “harmless,” the court could review the claim de novo.
In addition, the court in Halo found that the plan's failure to provide a timely decision could provide “good cause” for the claimant to introduce new evidence. A court with a de novo standard of review, considering newly introduced evidence may come to a very different conclusion that the plan fiduciary in reviewing a claim.
Another Second Circuit ERISA case, Salisbury v. Prudential Insurance, applied the de novo review standard because of the plan provider's delay in providing a decision on the claimant's health benefits claim. Specifically, the provider took longer than 45 days to render a decision. Even though Prudential claimed an extension, they provided “inadequate grounds for seeking an extension.”
Citing Halo, the court wrote, “if the plan administrator does not strictly comply with the Department of Labor's regulations governing the processing of an employee's claim, then de novo review applies to the denial of benefits, regardless of whether the plan vests discretion in the administrator.”
If you have any questions about your ERISA claims procedures, Butterfield Schechter LLP is here to help. We will identify potential problems before they arise or represent your interests in ERISA litigation. Contact our office today with any questions you have on how we can help you and your business succeed.