ERISA benefit claims require exhaustion of pre-litigation appeals. The materials that go back and forth between claimants and ERISA plan fiduciaries in this process are often voluminous and deal with some complex medical, vocational, insurance, tax or pension issues. One of the frustrating things about litigating ERISA benefit cases is the unwillingness of many judges to take the time and energy to review thoroughly the pre-litigation appeal record and give proper weight to the procedural shortcuts ERISA administrators usually attempt.
So it is gratifying to see the U.S. Court of Appeals for the First Circuit review an ERISA disability claim with careful attention to the procedural requirements and details of the specific case. The case, Bard v. Boston Shipping Assoc., ___ F.3d. ___, 2006 U.S. App. LEXIS 31137 involves denial of disability benefits by a multi-employer trust fund. Bard’s disability benefits were denied by the trust fund because it asserted that he did not present proof that his disability began before his employment terminated.
The decision zeros in on several procedural problems with how the trust fund handled Bard’s claim. The panel of judges was troubled by the failure of the ERISA-required Summary Plan Description to give clear notice to employees that they must be permanently and totally disabled before termination of their employment in order to be entitled to disability benefits. The court noted that such a precondition is not an inherent precondition to getting disability benefits.
The decision then focuses on a variety of trust fund violations of ERISA’s claims procedure requirements. First, the court notes that the trust fund failed to give Bard proper notice of the initial denial of his claim. Next, the fund violated the claims procedure requirements when it allowed the same individual to review Bard’s appeal as had originally evaluated and denied Bard’s claim review. Third, the fund failed to comply with the time limits outlined in the claim procedure regulations for making a decision on Bard’s appeal and notifying him of that decision. Fourth, the trust fund failed to consult an appropriate medical expert when reviewing Bard’s claim. Finally, the trust fund unreasonably refused to take into account updated medical records submitted by Bard’s treating physicians.
The court stresses that the procedural violations were not merely technical; the violations prejudiced Bard. For example, when he was not provided the information the claims procedure regulation required, Bard was not able to know what he needed to present to successfully appeal the denial. The ambiguity of the SPD language combined with the procedural violations caused the court to reverse the trust fund’s denial of Bard’s benefits.
The court’s analysis is interesting in that it effectively turns the normal standard of review rules of ERISA on their head. When utilizing an arbitrary and capricious standard of review, courts usually defer to any reasonable decision or interpretation of plan terms by a plan fiduciary. However, in Bard, the court ruled that since the claimant’s interpretation of the ambiguous SPD language was reasonable, when combined with the trust fund’s numerous procedural violations, Bard was entitled to his benefits. As should be the case, the court appropriately allows a meaningful remedy where ERISA plan administrators violate the statute’s claims procedure requirements.
A final noteworthy aspect of the decision is the court’s refusal to simply remand the case to the trust fund with the instruction that the trust fund do the claims procedure over. The tendency of courts to criticize plan administrator’s for violations of ERISA’s claims procedures and then to, essentially, bail out by simply sending the claim back to the ERISA plan to reconsider the case is obnoxious. When courts remand, the worst that happens is the plan administrator gets a lecture and can go back and provide a more procedurally solid claim denial. Thus, remands simply provide incentives for ERISA administrators to do as little as possible to comply with the claims procedure requirements of the statute. All the while, claimants in great need of benefits they have been promised suffer tremendous financial hardship. Bard avoids this by stating that where the procedural violations call into question the integrity of the decision-making process, the ERISA plan’s denial must simply be reversed and the claimant receives his benefits.