Exhaustion Not Required Because Plan Documents Did Not Include Claims Process

After her spouse’s death due to a heroin overdose, a participant brought benefit claims under her employer’s ERISA life insurance and accidental death and disability (AD&D) policies, which covered the spouse. The insurer paid the life insurance benefit but denied the AD&D claim, asserting that the policy’s “intentionally self-inflicted injury” exclusion applied. A previous trial court ruled in favor of the insurer, holding that the participant had failed to exhaust administrative remedies (i.e., the plan’s internal claims process) before bringing the lawsuit. On reconsideration granted at the participant’s request, the court held that exhaustion was not required and that the participant was entitled to AD&D benefits.

The court explained that participants generally must exhaust a plan’s administrative remedies before filing suit, but courts may excuse the exhaustion requirement in certain circumstances (see our Checkpoint article). In this case, neither the insurance policy provided to the employer nor the benefits certificate provided to participants included an exhaustion requirement—or any description of the plan’s claims review process. The insurer argued that its procedure was detailed in the benefit denial letter, but the court concluded that this was insufficient, pointing out that ERISA’s written plan requirement is intended to allow participants to understand their plan-related rights and obligations at any time, including before a denial of benefits. Absent a claims procedure for the participant to exhaust, exhaustion was not required, and the insurer’s denial letter could not impose the requirement outside the plan. Alternatively, the court ruled that the participant was deemed to have exhausted administrative remedies because the plan document did not contain any information about review procedures or remedies for denied claims. Turning to the merits, the court disagreed with the insurer’s conclusion that the death was not accidental because it was caused by the intentional use of heroin. Under that logic, the court said, any injury resulting from a voluntary act would be “reasonably foreseeable” and therefore not an accident in the insurer’s eyes. The court concluded that the intentionally self-inflicted injury exclusion did not apply without evidence that the spouse intended or should have expected his action to result in death. Thus, the participant was entitled to the benefit.

EBIA Comment: As this court noted, the plan document is at the center of ERISA. While it is generally acceptable, and most convenient, to set forth a plan’s claims procedures in a document that is separate from the formal plan document, it is crucial to expressly incorporate these procedures by reference—otherwise they are not actually part of the plan. The summary plan description must also reference the claims procedures. For more information, see EBIA’s ERISA Compliance manual at Sections VIII.E (“ERISA-Required Plan Provisions”), VIII.G (“Other Important Plan Provisions”), and XXXVI.B (“Exhaustion of Plan Administrative Claims Procedures”).

Contributing Editors: EBIA Staff.