Tennessee Disability and Life Insurance Blog
Most ERISA disability plans require claimants to file an administrative appeal of any denial of long-term disability benefits prior to filing a lawsuit. Under Sixth Circuit case law, if you fail to file an administrative appeal (also referred to as failing to exhaust administrative remedies), the court will likely dismiss your action regardless of the merits of your case. There are exceptions, however, that allow you to challenge a denial of benefits in court, even if you did not exhaust your administrative remedies.
In a ruling that will provide immediate help to many ERISA disability claimants, the United States Court of Appeals for the Sixth Circuit recently held that a plan administrator cannot require a claimant to exhaust his or her administrative remedies unless the relevant plan document specifically discusses required internal appeal procedures. In its opinion in Wallace v. Oakwood Healthcare, Inc. (Mar. 31, 2020), the Sixth Circuit does not go so far as to hold that the plan documents “affirmatively require exhaustion.” Practically speaking, however, the Wallace decision will make it difficult for plan administrators to deny a disability claim due to a disability claimant’s failure to appeal a denial of benefits if the policy did not require the claimant to submit an appeal before bringing suit.
Recently, our law firm represented a client who was discouraged after her disability case manager told her it would be a “waste of time” to appeal her denial of long-term disability benefits since she had already been turned down for short-term benefits. Long after her appeal deadline had passed, the client contacted us to file a lawsuit challenging the insurer’s denial of her claim.
After we brought suit on behalf of the claimant, the plan administrator filed a motion for summary judgment requesting that the court dismiss her case due to her failure to exhaust her administrative remedies. In our response, we argued that the client’s lawsuit was allowed under the “futility doctrine” based on the case manager’s discouraging comments. Under the futility doctrine, you can be relieved of the obligation to file a mandatory appeal if you can show that your appeal would have been unsuccessful based on how the plan administrator handled your claim.
Courts, however, are reluctant to apply the futility doctrine without overwhelming evidence that an appeal would have been futile. Fortunately, we were also able to argue that our client’s policy did not require her to exhaust her administrative remedies in the first place. The basis for this was the language in the client’s policy that provided that a claimant could not initiate any legal action:
(1) Until 60 days after Proof of claim has been given; or
(2) More than three years after the time Proof of claim is required.
Because our client’s lawsuit was filed less than three years after she submitted her initial claim and because there was no language in her policy requiring her to file an appeal, we argued that the insurer’s summary judgment motion should be denied. Although the Sixth Circuit does require that claimants exhaust their administrative remedies before bringing suit, we argued that rule should not apply if the policy did not specifically include an exhaustion requirement.
The court ruled in favor of our client. In recommending that the plan administrator’s motion for summary judgment should be denied, the magistrate judge cited several reasons, including the policy’s failure to include a requirement that claimants file an administrative appeal before filing a lawsuit. The district judge later upheld the magistrate’s recommendation denying the plan administrator’s motion for summary judgment.
In support of our response to the plan administrator’s motion for summary judgment, we cited the district court’s decision in Wallace, in which the court stated:
The exhaustion requirement must be written in a manner calculated to be understood by the average plan participant, and must be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.
The district court’s decision in Wallace was important in our case because it was the only time a district court in the Sixth Circuit addressed the issue of whether a claimant had to submit an administrative appeal if such an appeal was not required under any plan documents. Notably, the plan administrator appealed the district court’s decision in Wallace to the Sixth Circuit. In its decision, the Sixth Circuit disagreed with the district court’s award of benefits to the plaintiff; however, it upheld the district court’s denial of the plan administrator’s motion to dismiss on the basis of the claimants failure to file an administrative appeal.
In ruling in favor of the Wallace plaintiff on the exhaustion issue, the Sixth Circuit discussed how ERISA regulations require a plan administrator to establish a reasonable claims procedure. As the Sixth Circuit noted, however, the Wallace defendant’s plan contained no information about its review procedures or the remedies available when his or her claim was denied. Due to the plan document’s failure to detail its appeal procedures, the plaintiff was permitted to file a lawsuit even though she failed to submit an appeal. Notably, the Sixth Circuit also rejected the defendant’s argument that it outlined its appeals procedure in its denial letter on the grounds that a letter is not a plan document.
In an ERISA lawsuit contesting a denial of long-term disability benefits, the plaintiff can only rely on medical records and other evidence the plan administrator reviewed in making its decision. (These documents are often collectively referred to as the “administrative record.”) So, as a general rule, claimants should submit an administrative appeal of any denial of long-term disability benefits, even if the policy does not require it, because an appeal allows a claimant to add more medical evidence to the administrative record. Nevertheless, the Wallace decision is significant for the many claimants who are discouraged after an initial denial of benefits and decide not to submit appeals. If such a claimant later regrets his or her decision after the appeal deadline has passed, he or she may be able to bring a lawsuit if the relevant plan did not require the filing of an appeal. (A claimant should remember that regardless of whether he or she is required to exhaust administrative remedies, a lawsuit for long-term disability benefits must be filed in court before the applicable statute of limitations expires, or it will be forever barred.)
If you have questions about your appeal or rights to long-term disability benefits, consult with a long-term disability lawyer who has handled complex ERISA cases.