Greiff v. Life Ins. Co. of N. Am., 2019 WL 2912757 (D. Ariz. 2019)
When the long-term disability plan participant in this case sued to obtain denied benefits, the insurer argued her claim should be dismissed because she failed to exhaust the plan’s administrative remedies before filing suit. The participant contended that the terms of the governing plan documents did not require exhaustion of the plan’s claims process.
Despite the insurer’s citations to multiple plan provisions to support its argument that the plan’s language mandated exhaustion, the court disagreed. Citing Ninth Circuit precedent, the court explained that if a plan document could reasonably be read to make the administrative appeals process optional, exhaustion of remedies was not mandatory. The court examined a provision requiring written denial notices to include a statement that employees had the right to appeal and the right to bring a civil action if an appeal was denied. But it held that “a right to appeal” is not the same as “an obligation to appeal.” In examining a second provision, stating that the right to appeal would be waived if an appeal was not made within a specified time frame, the court concluded that such language would not alert a reasonable participant that this would also prevent pursuit of a civil action. Finally, the insurer argued that the participant’s denial letter, which addressed the right to appeal, the appeal procedures, and the right to bring a civil action if the appeal was denied, was incorporated by reference into the plan and required exhaustion of remedies. However, the court determined the letter was not part of the plan and, even if it were, the language was ambiguous. Explaining that it was obligated to construe the language against the drafter, the court held that the plan did not explicitly require participants to exhaust administrative remedies before filing suit.
EBIA Comment: Requiring a claimant to exhaust a plan’s administrative remedies before filing suit increases the likelihood that the dispute will be resolved without litigation. Claims procedure descriptions in plan related documents should use mandatory language (e.g., the words “shall” or “must,” instead of “may”) to make it clear that exhausting administrative remedies is not optional. In particular, special care should be taken with the model statement of ERISA rights, which some plan sponsors incorporate verbatim from the DOL’s SPD regulations and which provides that a plan participant “may file suit in Federal court” when a benefit claim is denied. Plan sponsors and administrators should consider adding a warning in plan documents and communications to employees about the need to exhaust the plan’s claims process before filing suit. For more information, see EBIA’s ERISA Compliance manual at Sections XXXVI.B (“Exhaustion of Plan Administrative Claims Procedures”) and XXXIV.C (Group Health Claims: Effective Dates and Consequences of Noncompliance). See also EBIA’s Self-Insured Health Plans manual at Section XXVI.J.1 (“Exhaustion of Plan Administrative Claims Procedures”).
Contributing Editors: EBIA Staff.