ERISA regulations include timelines for many of the different procedures performed under the rules, including the issuance of long-term disability decisions. Plans have 45 days to issue decisions on long-term disabilities and 60 days for other types of decisions. There are also certain circumstances where the plan administrator has the flexibility to extend the timeframe for benefit decisions. However, failure to issue a decision within the period or note that the extension is for a particular reason can prove costly.
Fessenden v. Reliance Standard Ins. Co. and Oracle
This case demonstrates what happens when the plan administrator issues the benefits denial even a few days late. The benefit claimant was deemed to have exhausted their administrative remedies and have the option to sue the plan. At this point, the court reviews the benefit denial and, even if there is otherwise substantial compliance, the plan administrator is still at fault.
In the case at hand, Fessenden was a software manager who sought long-term disability benefits for his diagnosis of Chronic Fatigue Syndrome. Reliance denied the clam and sent him a denial letter with instructions on how to appeal the denial. The letter stated that Reliance would issue a final decision within 45 days unless there were special circumstances, a standard timeline for an ERISA long-term disability review. If there were special circumstances, the letter continued, then Reliance would notify him of a final decision in 90 days. Reliance issued their final decision , leaving Fessenden to sue both Reliance and Oracle.
Seventh Circuit Decision
On appeal, the Seventh Circuit focused on the question of whether substantial compliance excused the plan administrator for being just a little late and found that the plan administrator had failed to follow the ERISA-required procedures, including meeting deadlines, and so the claimant was free to sue the plan. Further, the absence of a final decision by the plan affects the standard of review for the case because while the administrator has discretionary authority, without the final decision the court cannot know what that exercise of discretion would be and so is free to decide de novo whether the insured is entitled to the requested benefits. A de novo review means that the court considers the facts as though they were being presented for the first time without deference to previous decisions on the matter.
Reliance argued that since they were only a little late and had not failed to render a decision, they were substantially compliant. However, the Seventh Circuit found that the common law doctrine of substantial compliance could not override ERISA regulations. Deadlines require strict compliance, even if substantial compliance can be applied to other areas of the regulations.
The experienced, responsive team at Hall Benefits Law views this case as a cautionary tale of what happens when plans fail to meet the requirements laid out by ERISA. We work with our clients to help them put in place processes and procedures to avoid these issues and help them mitigate damages when a problem does occur. Learn more by calling 678-439-6236 or visiting the Hall Benefits Law website.
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