ERISA - Exhaustion of Administrative Remedies Archives

ERISA Claimants Can Make Use of the Futility Exception to the Requirement to Exhaust Administrative Remedies in Limited Circumstances When STD Claim is Denied to Avoid Filing LTD claim

The Employee Retirement Income Security Act of 1974 (“ERISA”) mandates that claimants under an ERISA plan have access to the federal courts. But courts have ruled that prior to litigation, a claimant must exhaust all administrative remedies, such as appealing insurers’ denials of claims. However, the futility doctrine provides an exception to this requirement that, while narrow, can prove valuable for some claimants.

Joni Dioquino (“Dioquino”) was eligible for short-term disability (“STD”) and long-term disability (“LTD”) benefits through United of Omaha Life Insurance Co (“Omaha”), which served as claims administrator and claims fiduciary for the plan. When she was diagnosed with conditions causing her leg pain, especially when sitting for more than a few minutes, which her job required, she made an STD claim to Omaha. Omaha denied her claim, supporting its denial with the opinions of an unknown nurse case manager and two “paper review” doctors, each of whom had clearly ignored at least some of her medical records. She appealed Omaha’s decision twice and Omaha upheld its denial both times, despite clear and extensive medical evidence supporting her claim. The reasoning provided for its decisions made it clear that Omaha simply ignored substantial medical evidence, including statements contradicting the evidence.

Dioquino sued Omaha to recover both STD and LTD benefits. Omaha filed a Motion for Summary Judgment arguing in part that Dioquino lacked standing to sue for LTD benefits because she never filed an LTD claim to Omaha. Dioquino opposed Omaha’s motion, arguing under the futility doctrine that she had legal standing to sue for LTD benefits as well as STD benefits because submitting an LTD claim with Omaha would have been futile. The Court agreed with Dioquino and denied Omaha’s Motion for Summary Judgment, finding that Dioquino’s allegations could demonstrate that for her to submit an LTD claim to Omaha would be an act of futility.

The futility doctrine provides an exception to the jurisprudential rule that claimants must exhaust all administrative remedies prior to filing legal action. It applies in cases in which an administrative review is demonstrated to be doomed to fail. Diaz v. United Agr. Emp. Welfare Ben. Plan & Tr., 50 F.3d 1478 (9th Cir. 1995). In Burnett v. Raytheon Co. Short Term Disability Basic Benefits Plan, 784 F.Supp.2d 1170 (C.D. Cal. 2011), the Court provided four factors to be considered in determining whether the futility exception applies: 1) whether the definitions for “fully disabled” for purposes of STD and LTD benefits are substantially the same; 2) whether the plans are integrated, such that they rely on and refer to each other; 3) whether the denial or termination of STD benefits essentially dooms any LTD claim; and 4) whether the plans are administered by the same entity.

The presence of the Burnett factors in Dioquino’s case was the basis on which the Court denied Omaha’s Motion for Summary Judgment, thus allowing her case to move forward. While plan terms can be widely varied and vastly different for any claimant, situations like Dioquino’s can and do occur. To go through the LTD claim process can set a claimant’s ability to recover benefits back by several months. Thus, awareness of plan terms can be of vital importance for some claimants. McKennon Law Group PC has significant experience in handling ERISA and non-ERISA insurance cases in which an insurer denied a claim. If your insurer or plan administrator has denied your claim, please contact us for a free consultation so that we may assess your matter.

Exhaustion of Remedies and the Failure to Raise an Argument on an ERISA Appeal: What Happens if an ERISA Claimant Misses a Key Factual or Legal Argument on Appeal?

Under insurance policies governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), when an insurer denies a person’s claim for life insurance benefits, short-term-disability benefits or long-term-disability benefits, the beneficiary must request that the insurance company review the denial or termination if they intend to sue the insurer to obtain their benefits. Courts refer to this review as an “administrative appeal” and the obligation to pursue that appeal as the duty to exhaust administrative remedies. Courts have universally concluded that they “have the authority to enforce the exhaustion requirement in suits under ERISA, and that as a matter of sound policy they should usually do so.” Amato v. Bernard, 618 F.2d 559, 568 (9th Cir. 1980). The administrative appeals process is very important. Not only must a beneficiary pursue their administrative remedies in order to obtain the right to sue in court, but a beneficiary’s actions during the administrative appeals process can have serious ramifications for any resulting litigation.

When a beneficiary appeals an insurer’s initial decision, the documents submitted to the insurer become the “administrative record.” If an insured fails to submit a piece of evidence to the insurer, a Court may refuse to consider the evidence in any subsequent litigation. During litigation, a court usually only examines the administrative record. See, e.g., Blaj v. Unum Life Ins. Co. of Am., 2014 WL 2735182, at *2 (N.D. Cal. June 16, 2014) (citing Opeta v. Northwest Airlines Pension Plan, 484 F.3d 1211, 1217 (9th Cir. 2007), and stating that “a district court should determine whether the plaintiff is entitled to benefits based on the evidence in the administrative record, and evidence outside the administrative record may only be considered in ‘certain limited circumstances’”). Given the importance of building a strong administrative record, beneficiaries potentially imperil their claim by performing their own appeal. However, assuming an insured sends the insurer all relevant records, then a skilled attorney will likely possess most of the tools required to build their argument and win a case in court.

Given that a court rarely examines evidence outside the administrative record, a second question naturally arises: Can a beneficiary present arguments to a judge that they did not raise when pursuing their administrative appeal? The idea that a beneficiary cannot present an argument for the first-time during litigation is referred to as “issue exhaustion.” Thankfully, courts nearly universally reject insurance companies’ attempts to invoke this doctrine.

In Vaught v. Scottsdale Healthcare Corp. Health Plan, 546 F.3d 620, 630 (9th Cir. 2008), the Ninth Circuit rejected an insurer’s attempt to dismiss a claim because of an alleged failure to satisfy this doctrine. The Ninth Circuit explained that the Supreme Court has instructed lower courts that “issue exhaustion is typically a creature of statute or agency regulation.” Id. The Ninth Circuit subsequently reasoned that because, “No ERISA statute precludes courts from hearing objections not previously raised to the Plan, nor does any ERISA statute or regulation require claimants to identify all issues they wish to have considered on appeal,” ERISA does not require issue exhaustion. Id.

In Wolf v. National Shopmen Pension Fund, 728 F.2d 182, 186 (3d Cir. 1984), the Third Circuit reached the same conclusion. ERISA does not compel courts to enforce the doctrine of issue exhaustion. The Third Circuit explained that it had found no caselaw supporting the doctrine:

Section 502(a) of ERISA does not require either issue or theory exhaustion; it requires only claim exhaustion. 29 U.S.C. § 1132(a). The Pension Fund cites no case, nor are we aware of any case which holds that a district court cannot decide a claim relying on a theory different from that presented to the Trustees of a Pension Fund. All of the cases with which we are familiar concern themselves only with whether the internal union remedies have been exhausted before finding federal jurisdiction appropriate.

Id. (emphasis in original).

These rulings declining to impose an issue exhaustion requirement protect ERISA plan participants and their beneficiaries. McKennon Law Group PC receives many calls from people who conducted their own appeals after an insured denied their benefits. If, in fact, issue exhaustion applied, then we likely could not help these people. A lay person does not know what the law requires of an insurer or what to argue on appeal. Many appeal letters drafted by attorneys, such as those at this firm, contain pages of legal argument and citations to cases supporting the claim. If issue exhaustion applied, a beneficiary would be required to seek legal counsel during the appeals process. One honest misstep would result in the claim being unsalvageable.

Of note, the Ninth Circuit did state that an insurer could, in theory, include an issue exhaustion requirement in a policy. See Vaught, 546 F.3d at 629-33. An insurance policy is just a specialized form of contract. The plain language of the contract dictates the relationship between the parties. However, the Ninth Circuit concluded that language stating that a beneficiary must “clearly explain . . . the reason why you think the Claims Administrator should reconsider your claim” lacked sufficient specificity so as to impose a contractual issue exhaustion requirement. Id. at 629, 632. The Vaught court’s opinion also implies that any such contractual requirement would need to be very explicit. See id.

That courts do protect ERISA plan participants and their beneficiaries in this instance does not mean that it is wise to handle appeals on their own. There are many pitfalls and landmines to avoid and hiring experienced ERISA appeals attorneys like McKennon Law Group PC may make the difference between getting your long-term disability claim paid or not.

Court Denies Insurer’s Motion to Dismiss, Finding Plan Language Did Not Clearly Require Administrative Exhaustion Prior to Filing Suit

Ordinarily, a participant or beneficiary of a plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”) must avail himself or herself of the plan’s internal review procedures before bringing a civil action in federal court for recovery of plan benefits. This includes group ERISA plans offering long-term disability, life, health or accidental death benefits. Although ERISA does not explicitly require exhaustion of administrative remedies, federal courts have held that an ERISA plan participant must exhaust the plan’s administrative appeal procedure before filing a federal lawsuit. See Vaught v. Scottsdale Healthcare Corp. Health Plan, 546 F.3d 620 (9th Cir. 2008). However, according to the Ninth Circuit, this exhaustion requirement applies only if the plan itself requires exhaustion. Spinedex Physical Therapy USA Inc. v. United Healthcare of Ariz., Inc., 770 F.3d 1282 (9th Cir. 2014). But what if the plan documents are ambiguous and it is unclear whether administrative exhaustion is required? A recent decision grappled with this issue.

In Greiff v. Life Insurance Company of North America, 386 F.Supp.3d 1111 (D. Ariz. July 2019), the Court denied defendant Life Insurance Company of North America’s (“LINA”) motion to dismiss for failure to exhaust administrative remedies, finding that the plan documents were ambiguous as to whether administrative exhaustion was required. The plaintiff in Greiff sought to recover long-term disability benefits from LINA under a plan governed by ERISA. LINA moved to dismiss the complaint arguing that the plaintiff had failed to exhaust administrative remedies imposed by the plan. The plaintiff argued that the plan did not require exhaustion of administrative remedies.

In analyzing the plan language at issue, the Court recognized that the plan terms should be interpreted in an ordinary and popular sense as would a person of average intelligence and experience. The Court also acknowledged, pursuant to the Ninth Circuit ruling in Spinedex, that where plan documents could reasonably be read as making the administrative appeals process optional, administrative exhaustion is not required. The Ninth Circuit in Spinedex recognized that claimants may be affirmatively misled by plan language that appears to make the exhaustion requirement permissive when it is in fact mandatory.

In Greiff, to support its position that the plan documents required administrative exhaustion prior to filing a lawsuit, LINA relied on language contained in two sections of a claim procedures rider and language in the denial letter to the plaintiff. The language relied on in the first section of the claim procedures rider stated that written notice of a claim denial will include:

A statement regarding the right to appeal the decision, and an explanation of the appeal procedure, including a statement of the right to bring a civil action under Section 502(a) of ERISA if the appeal is denied.

The second section of the claim procedures rider stated that:

Whenever a claim is denied, there is the right to appeal the decision. A written request for appeal must be made to the Insurance Company within 60 days (180 days in the case of any claim for disability benefits) from the date the denial is received. If a request is not made within that time, the right to appeal will have been waived.

The Court found that this language would not alert an average claimant that failing to exhaust administrative remedies will preclude him from bringing a civil action under ERISA. With regard to the language in the first section, the Court pointed out that this language pertains to LINA’s obligations, rather than the claimant’s obligations. Furthermore, the Court stated that informing a claimant that he has a right to appeal is not the same as telling the claimant that he must appeal or he loses his right to prosecute his claim in federal court. In addition, telling a claimant that he has the right to bring a civil action if the appeal is denied is not the same as telling the claimant that he does not have a right to bring a civil action if he fails to appeal the denial. The Court determined that the language contained in the claim procedures rider could reasonably be read as making the administrative appeal process optional.

LINA also relied on language contained in a claim denial letter sent to plaintiff which stated, “ERISA requires that you go through the Company’s administrative appeal review process prior to pursuing any legal action challenging our claim determination.” The denial letter also stated that “[y]ou have the right to bring a legal action for benefits under . . . ERISA . . . following an adverse benefit determination on appeal.” The Court determined that the language in the denial letter did not constitute terms of the plan because claim denial letters were not among the documents that the plan specified as being part of the contract. The Court also stated that even if the claim denial letter was a part of the plan documents, the language in the denial letter did not clearly state that the plan required administrative exhaustion. The Court found the language in the denial letter insufficient to put a claimant on alert that he must exhaust administrative remedies for the same reasons that the language in the claim procedures rider was insufficient – stating that a claimant has a right to bring a legal action after a claim denial does not mean that he does not have a right to bring a civil action in any other circumstance. In addition, the Court noted that although the denial letter stated that ERISA required a claimant to go through the administrative appeal process as a prerequisite to filing suit, it did not clearly indicate that the plan required such exhaustion.

The Court in Greiff ruled that because the language at issue was ambiguous and could reasonably be read as making the administrative appeals process optional, the plan did not require administrative exhaustion, and, accordingly, LINA’s motion to dismiss was denied. As always, claimants should be extremely careful to ensure that all required administrative appeals are exhausted before filing a federal civil action. However, should claimants find themselves facing allegations that they did not exhaust administrative remedies, they should look closely to the plan language to determine if administrative exhaustion is clearly required.

The Basics of an ERISA Life, Health and Disability Insurance Claim – Part Five: Procedural and Practical Considerations to an ERISA Claim

In this several part Blog Series entitled The Basics of an ERISA Life, Health and Disability Insurance Claim, we discuss the basics of an ERISA life, health, accidental death and dismemberment and disability claim, from navigating a claim, handling a claim denial and through preparing a case for litigation. In Part Five of this Series, we discuss procedural considerations to an ERISA claim, as well as deadlines and timeframes to carefully monitor.

When first reviewing a potential ERISA matter, it is crucial to first determine the procedural history of your client’s claim and whether there have been any denials. Most denial letters in ERISA cases set forth specific deadlines to respond to an appeal. In fact, the Department of Labor regulations specifically dictate that a claimant be advised of her appeal rights.

The federal statue governing claims procedures under ERISA requires that “in accordance with regulations of the Secretary [of Labor], every employee benefit plan shall … 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. § 1132(2). The regulation implementing 29 U.S.C. § 1133 states that a “reasonable opportunity for a full and fair review” is “at least 180 days following receipt of a notification of an adverse benefit determination within which to appeal…” (Emphasis added.) 29 C.F.R. § 2560.503-1(h)(3), (h)(3)(i), (h)(4). Further, in terms of calculating the 180-day deadline, courts interpreting this provision have held that if the deadline falls on a weekend, it extends to the following business day. LeGras v. AETNA Life Ins. Co., 786 F.3d 1233, 1237-38 (9th Cir. 2015).

However, if the deadline to submit an appeal has already run, this is largely accepted as being similar to missing a statute of limitations. If a claimant has missed the deadline to appeal, it is known as a failure to exhaust administrative remedies. It still may be worthwhile to ask the claim administrator to accept a late appeal or check the plan language to determine if administrative remedies be exhausted as a prerequisite to filing suit. However, if this does not work, there still may be a way to pursue litigation against the insurer or employer to get your life, medical or disability benefits paid. One way is to see if there is a recognized exception to the failure to exhaust administrative remedies doctrine. One such exception is the futility doctrine. We have discussed this previously here. [https://mslawllp.com/exceptions-to-the-exhaustion-requirement-when-is-an-appeal-futile-under-erisa/; https://mslawllp.com/exhaustion-of-administrative-remedies-under-erisa-not-required-if-exhaustion-would-have-been-futile/]

If a client has not submitted an appeal, and the deadline is quickly approaching, request an extension of time from the claims administrator. If the extension is not granted or the claims administrator does not respond in a timely fashion, the claimant should advise the administrator in writing that he is submitting an appeal of the denial, and provide as much supportive documentation as possible under the circumstances. After this initial appeal request is sent, gather the additional information, supportive medical records and documents and submit the appeal to the claims administrator. Courts typically require additional evidence of disability to be considered up until the date the appeal is denied, which will likely be after the submission of additional evidence if the appeal is sent promptly.

Some plans allow for a second appeal of a denial to be submitted. These denial deadlines are treated similarly with the first claim denials, and have similar deadlines to submit information. Remember, the appeal process allows the client to add additional supportive evidence of disability to the Administrative Record, which often includes certification letters from treating physicians, personal statements, updated medical records, updated occupational information, etc. It is necessary to have a strong Administrative Record that includes all of the critical evidence needed to support a life, medical or disability claim before commencing litigation. Therefore, it is important to enclose as much documentary support as may be needed in litigation, as courts may not allow you to supplement the record with evidence during litigation.

Sometimes, claimants may request attorney representation before a denial has been received. Nervous of the unscrupulous nature of some disability insurers, many claimants are worried that one of their main (and sometimes only) income source will be improperly ended by their insurer. Most first-party insurance policies, including life insurance, disability insurance, property insurance and liability insurance policies, require that an insured policyholder provide notice of a claim within a specified period of time, typically, “as soon as practicable,” “during the Elimination Period” or a similar formulation. See e.g. Ins. Code § 10350.7 (requirement in disability policies). For this reason, be wary of situations where your client may not have given timely notice of their claim. But, even where a policy specifies that timely notice is a condition precedent to coverage, a policyholder-friendly rule known as the “notice-prejudice” rule has been adopted by California courts to help subvert these provisions. We discussed the application of that rule here.

Next, many of the same considerations for the post-denial period apply where the claimant has not yet received the denial. The goal remains the same—obtain medical records, attending physician statements that certify your client’s disability, and submit these records to the insurer in a timely fashion. With this, the insurer will have as much information as needed to make a favorable benefit determination.

Exceptions to the Exhaustion Requirement: When is an Appeal Futile Under ERISA?

If an insurer recently denied your claim, do not ignore the appeal requirements stated in the denial letter or you may lose the right to pursue your benefits. The Employee Retirement Income Security Act of 1974, or ERISA, protects most employee benefits, such as life insurance benefits, long-term disability income insurance benefits, accidental death and dismemberment insurance benefits and other such benefits offered through employer-sponsored plans. ERISA does so by establishing certain internal claims handling procedures, often referred to as “administrative remedies.” These administrative remedies govern the claims handling process when an administrator determines a plan participant’s eligibility for benefits. Although each employer-sponsored plan has different requirements, most contain provisions that require a plan participant to exhaust at least one level of internal appeal before he or she can file a lawsuit. Typically, where a plan participant fails to do so, he or she will also lose the ability to further pursue wrongfully denied life insurance, long-term disability insurance, accidental death and dismemberment insurance benefits.

In this blog article, we briefly cover the basics of the exhaustion doctrine under ERISA. We discuss a few well-recognized exceptions to the requirement, where the internal procedures are inadequate or pursuing an appeal would be futile because it is “doomed to fail.” Although these exceptions apply in limited circumstances, it is important to remember that a plan participant/insured bears the difficult burden of establishing that he meets these requirements. Ultimately, the safest route is to do everything you can to comply with the appeal procedures, even if you think doing so would be futile.

A Brief Discussion of the Exhaustion Requirement
ERISA does not expressly mandate exhaustion of administrative remedies before filing suit. The requirement that a plan participant first exhaust his or her administrative remedies is a court-established doctrine. However, the requirement for exhaustion does find its origins in the text of ERISA, which contemplates a “full and fair review” of adverse benefit determinations made in the administration of an ERISA-governed plan for life, health, disability, accidental and other employer-sponsored benefits. If the plan documents expressly require exhaustion, the individual plan participant is required to complete the internal appeal as stated in the plan.

The courts strongly support the “sound policy” of requiring a plan participant to exhaust administrative remedies for several reasons. First, Congress specifically authorized the courts to establish a “common law” for issues under ERISA, and like the closely related Labor Management Relations Act, ERISA common law also requires exhaustion. Second, exhaustion is consistent with the Legislature’s aims and goals in its enactment of ERISA, which protects employees from abuse of their benefit or pension plans by establishing internal review requirements. Third, allowing levels of internal review gives the ERISA plan or claims fiduciary the ability to fully consider its determination of benefits. For example, if the claims administrator denies disability benefits based on missing or incomplete medical records, the appeal allows the participant an opportunity to point out the missing information and ensure that the information appears before the claims administrator. That way, if the administrator decides to uphold its denial of benefits, it is at least based on a full set of facts in support of the individual’s claim. Finally, the doctrine also helps to achieve sound judicial policy by promoting the efficient use of judicial resources. Requiring internal review ensures that, by the time the denial of benefits reaches the federal court, the primary dispute revolves around the adequacy of the decision, not whether a decision was made at all.

Exceptions to Exhaustion: When are Appeals Futile or Inadequate Internal Procedures under ERISA?
Most courts promote strict adherence to the exhaustion requirement. Accordingly, the courts recognize exceptions to it in only a few circumstances. As a general matter, there are two well-established situations where the exhaustion requirement does not apply: if procedures are inadequate or the appeal is futile. The plan participant bears the burden of proving these exceptions apply.

Inadequate Internal Procedures
The first exception, inadequacy, is aptly named because it simply refers to a situation where the plan’s internal claims handling procedures provide an inadequate remedy. For internal review procedures to be inadequate, the claimant must show that the procedures followed by the claims administrator failed to comply with the terms of ERISA or its implementing regulations. To do so, the plan participant must specifically allege how the plan’s terms or the administrator’s actual conduct violated the statute or regulations. Further, a minor error, alone, does not establish inadequacy. Typically, if the administrator can demonstrate substantial compliance, the court will find the claims procedures adequate.

Futility
In contrast, futility applies where a resort to the plan’s internal, administrative remedies would be futile, pointless and “doomed to fail.” In one relatively recent unpublished Ninth Circuit opinion, the Court reversed and remanded the District Court’s opinion granting summary judgment in favor of the insurer based on a failure to exhaust administrative remedies in connection with a denied long-term disability claim. See Carey v. United of Omaha Life Ins. Co., 633 Fed.Appx. 478 (9th Cir. 2016). In finding the appeal “futile” and excused from further exhaustion, the Ninth Circuit looked to the claimant’s conduct following the denial and the language of the communications between the insurer and the claimant. Following the denial, the claimant filed a complaint with the California Department of Insurance, which in turn requested that the insurer reevaluate its decision. Following this request, the insurer wrote to the claimant, stating that it had “reviewed all of the documentation” and was “unable to approve” his long-term disability claim.

Relying on ERISA principles that the terms in an ERISA plan should be interpreted in an ordinary and popular sense, the Court determined that the insurer’s imprecise communications indicated to the claimant that pursuit of further review would have been futile as follows:

Because of the imprecision in United’s communications, however, a person in Carey’s position would have thought that United had reviewed the substance of his case and decided anew that he was not entitled to benefits. The plain language of the communications indicated to Carey that pursuing a further request for review—thinking that one had already occurred—would have been futile. C.f. Vaught, 546 F.3d at 628 (explaining this court’s “principle that terms in an ERISA plan should be interpreted in an ordinary and popular sense as would a [person] of average intelligence and experience” (internal quotation marks omitted)); Booton v. Lockheed Med. Benefit Plan, 110 F.3d 1461, 1463 (9th Cir.1997) (when communicating to claimants that benefits are denied, “the reason for the denial must be stated in reasonably clear language”). Id., at 479.

The Court found futility expressed in the communication quoted above, even though the same communication also reiterated the appeal procedures to the claimant.

In most cases, it will not be easy to prove an exception to the exhaustion requirement. Accordingly, the safest way to protect your benefits is to ensure that you understand and comply with the strict deadlines and requirements for an internal appeal, even if you think doing so would be futile or the procedures are inadequate.

Exhaustion of Administrative Remedies in ERISA: The Potential Death Knell of a Disability, Life or Health Insurance Claim

The Employee Retirement Income Security Act of 1974, or ERISA, establishes protections for most employee benefits offered through employer-sponsored benefit plans. ERISA requires that the plan and claims administrators adhere to certain internal procedures, often referred to as “administrative remedies,” when determining a plan participant’s eligibility for benefits. Typically, these administrative remedies include internal appeals directly to the insurer or claims administrator. Although each individual plan is different, most plans require at least one level of internal appeal, which you would have to “exhaust” before you can file a lawsuit. However, some plans require that an employee exhaust two levels of internal appeals before he or she can file suit.

Whether it is one or two levels of appeal, exhausting administrative remedies is incredibly important to your benefits claim because, if you do not, you may lose your ability to file a lawsuit to recover your benefits. In this article, we discuss the consequences of failing to meet the exhaustion requirement and explain the Ninth Circuit’s application of the exhaustion requirement to “disguised” benefits claims, such as the alleged statutory violation in Diaz v. United Agr. Employee Welfare Ben. Plan & Tr., 50 F.3d 1478 (9th Cir. 1995).

Why Exhaustion?
The text of ERISA does not, itself, require that the plan participant or beneficiary exhaust their internal administrative remedies before filing suit. However, a beneficiary seeking determination of rights or benefits under an ERISA plan must first exhaust administrative remedies, unless doing so is futile. See Amato v. Bernard, 618 F.2d 559 (9th Cir. 1980). The Ninth Circuit has held that the failure to exhaust acts as a bar only if the plan documents expressly mandate exhaustion prior to seeking judicial review. See Spinedex Physical Therapy USA, Inc. v. United Healthcare of Ariz., Inc., 770 F.3d 1282, 1298 (9th Cir. 2014). But, most plans do contain such a requirement.

Simply “Disguising” an ERISA Benefits Claim as a Statutory Violation Won’t Work
Where the claim is not a “repackaged” benefit claim and seeks equitable relief, exhaustion of administrative remedies may not be required. For example, it is well-settled Ninth Circuit precedent that breach of fiduciary duty claims, as opposed to benefits claims, are not subject to the exhaustion doctrine. But, a claimant may not dress a benefit claim as a statutory violation or breach of fiduciary duty where he or she failed to meet the exhaustion requirements. Some have tried, and the courts were not so easily fooled. In Diaz, supra, the Ninth Circuit directly addressed the importance of exhaustion by rejecting a claimant’s attempt to disguise his failure to appeal and “repackaging” a benefit claim as a statutory violation.

In Diaz, plaintiff sought relief for his medical plan’s failure to cover his daughter’s treatment for leukemia, based on an alleged statutory violation of the Consolidated Omnibus Budget Reconciliation Act, or COBRA, amendments to ERISA. Generally, the COBRA amendments to ERISA establish requirements regarding continued coverage for certain employees that experience a qualifying event, which would otherwise result in a termination of coverage. Because of the plaintiff’s seasonal work schedule, he experienced such “qualifying events” on a somewhat regular basis and, as a result, periods of intermittent coverage under the plan that triggered COBRA requirements.

These periods of intermittent coverage left plaintiff and his family without health insurance for the months of August and September 1990. Sadly, in September 1990, plaintiff’s daughter was diagnosed with leukemia and the plan denied her claims based on the policy’s pre-existing condition exclusion. Although the initial denial letters plaintiff received from the plan administrator contained a notice of appeal rights in both English and Spanish, plaintiff did not pursue the internal appeal to the insurer. Instead, he filed a lawsuit.

The District Court found in favor of the insurer because it determined that plaintiff failed to exhaust his administrative remedies, as he did not appeal the insurer’s initial denial as required under the plan. Plaintiff challenged the District Court’s decision, bringing it to the Ninth Circuit on alternative theories that 1) exhaustion principles do not apply to the claims as they are based on statutory violations and 2) even if exhaustion requirements did apply, exceptions for inadequacy and futility prevent his case from being barred.

Generally, the Ninth Circuit rejected both arguments as attempts to disguise an individual benefit claim that simply failed to take part in the internal appeals process. In assessing these arguments, the court found the case distinguishable from others that did successfully allege statutory violations or the futility or inadequacy of administrative review. The court determined plaintiff’s claim for relief based on a statutory violation was not at the heart of the claim. Instead, it was “an individual’s claim for plan benefits under a particularized set of facts,” which is just the type of case that led the courts to establish the exhaustion requirement in the first place.

To the courts, exhaustion of the ERISA-mandated internal remedies is necessary to ensure judicial review remains available in a benefits matter. The courts consider the doctrine “sound policy,” and consistent with the goals and aims of ERISA, as well as the efficient use of judicial resources. The alignment of these various competing policies in favor of exhaustion strengthens it, and if your benefits are important to you, taking an active role in ensuring that you comply with the review mandated under the plan should be, too; a failure to complete the latter may prevent you from pursuing the former, your benefits.

Note: If your ERISA claim has been denied, following the internal review procedures is integral to the success of your claim. It is also important to have experienced disability, health and life insurance attorneys, like those at the McKennon Law Group PC. Fill out our free consultation form today to set a time to discuss your claim with one of our attorneys, several of whom previously represented insurance companies and are exceptionally experienced in handling ERISA and Non-ERISA insurance claims.

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