There are a number of ghosts that have appeared in ERISA over the years. We know where they hang out, and we're not afraid of ghosts! And as the Ghostbusters would say, “we're ready to believe you.” Let us help you or your clients with your ERISA disability claim.

In the meantime, read about three of the ghosts of ERISA's past below:

1. Substantial Compliance

The ERISA statute does not appear unfair on its face. But, when you read the thousands of cases interpreting the statute, unseen rules are interjected into ERISA which shade that fairness. One such unfairness, which is nowhere to be found in the statute, is the “substantial compliance” rule.

To understand this rule, you have to look at the origins of ERISA. Congress provided ERISA's bones. It authorized the Department of Labor to establish regulations to put flesh on those bones. Insurance companies argue that compliance with the regulations cost them money, which is true if “compliance with the regulations” means paying claims.

Some insurance companies which violated the regulations argued that they shouldn't be held accountable as the violation was relatively minor (they had “substantially complied”), and they hadn't actually violated the ERISA statute itself. Some courts bought it. And that foothold grew. Pretty soon the regulations were diluted, and a new “rule” emerged.

For example, the claim procedure regulation requires a long-term disability plan to permit a participant at least 180 days to challenge a denied claim. Insurers honor that but have turned it into a hard and fast 180-day deadline. If a claimant is one or two days late, the claim is dead. And, courts have upheld that position.

The same regulation also requires an insurer's decision to be made within 45 days, or in a maximum of 90 days if a matter beyond the control of the insurer develops. So, if a decision is not made within 45 days, and there is nothing beyond the control of the insurance company which prevented the decision, then the participant is entitled to file suit and request review of the claim by a court. Or, so it would seem.

Under the “substantial compliance” rule, if the insurer made a decision within a few weeks of the lawsuit filing, a court may say that is okay. The insurer had “substantially complied” with the regulations and the policy. So, long-term disability participants never know how long they may have to wait. Two weeks after the deadline? A month? Three months? A year? Where is the line?

Fortunately, some courts have recognized the unfairness of this ghost – the unwritten substantial compliance rule. The Seventh Circuit is one of those courts. In Fessenden v. Reliance Standard Life Ins. Co., Mr. Fessenden filed a lawsuit after the time for the insurance company to make a decision on his appeal had passed. The insurance company then made its decision. The insurance company conjured that ghostly “substantial compliance” rule, and the district court bought it. This is particularly offensive given that this company has refused to accept appeals from plan participants submitted past the 180-day deadline and courts have refused to use the substantial compliance rule for those participants.

The Seventh Circuit reversed the district court holding that “…the ‘substantial compliance' exception does not apply to blown deadlines. An administrator may be able to “substantially comply' with other procedural requirements, but a deadline is a bright line.” That ghost is busted.

So, what happened to Mr. Fessenden's case? It was remanded back to the district court with instructions that a de novo standard of review should apply (that's a ghost for another day). Because no decision had been made by Reliance, the court would decide whether Mr. Fessenden met the definition of disability under the policy with no deference given to the insurer's decision because it was not timely made.

Based on prior decisions of the Eleventh Circuit under an older version of the claim procedure regulation, I anticipate that the Eleventh Circuit would follow the Seventh Circuit's reasoning.

2. No Discovery

The right to conduct discovery is provided in the federal and state rules of procedure for civil cases. It is an important part of due process in nearly every civil matter. However, not all courts have seen it that way for ERISA cases. Some see the “no discovery ghost” working with the “standard of review ghost” to bar discovery. The lack of discovery “hogties” the benefit claimant's case so that it experiences a slow, painful demise. If insurers and plans know there is no discovery, and they enjoy complete control over what is in the claim record, there is a strong propensity for many “facts” to be left out of the record. One court recently examined this ghost of no discovery in Stewart v. Hartford Life & Accident Ins. Co., 356 F. Supp. 3d 1344 (N.D. Ala. 2019).

In Stewart, Judge Bowdre recalled that the 11th Circuit once said, “an ERISA plaintiff cannot generally supplement the Administrative Record with additional evidence after the plan administrator's decision has been made.” Oliver v. Coca Cola Co., 497 F.3d 1181, 1195 (11th Cir. 2007)). The “standard of review” ghost appears and joins forces with “no discovery” ghost on benefit claimants. The ghosts jointly argue that the 11th Circuit has its own unique six step review process for cases governed by the arbitrary and capricious standard of review. The first step is for the court to conduct a de novo review. Thus, the ghosts jointly echo that no discovery is necessary if the court first reviews de novo its nicely compiled claim record. The Court will quickly see that the insurer and plan are right as to the claim decision. No discovery is needed for that. It is “administrative” after all.

The court in Stewart saw the problem. The judge explained that this “prohibition” on discovery was not absolute. If the claim administrator has the ability to put into the claim record only what it wants, information helpful to the claimant may well end up missing. Thus, discovery is permitted to aid the court in understanding the review, including all facts that were known, those that were available, and any conflicts of interest. Id. at 1351.

This ghostly attack will arise again. It attacks in waves every few years. Experienced ERISA lawyers know how to counter this. Give us a call to team up against this gang of ghosts!

3. Exhaustion

Judge Watkins from the Middle District of Alabama recently reminded us of an ERISA ghost in Williams v. Walmart Stores E., LP, No. 1:2018cv00874 (M.D. Ala. 2019). The ghost of Exhaustion does not actually exist in the ERISA statute. Rather it was summoned up to its ethereal existence with hundreds of other court cases across the land. In 1985, the 11th Circuit Court of Appeals released the spirit when it conjured that Congress had provided that “ … pension plans provide intrafund review procedures. ” Mason v. Continental Group, Inc., 763 F.2d 1219, 1227 (11th Cir. 1985). That reference to some funds having review procedures was enough to pull the concept of exhaustion into the law. Of course, many employers do not have a collective bargaining agreement or a pension plan with review procedures so does the ghost affect their plans? The 11the Circuit said “yes”.

Other decisions were conjured in the séance resulting the exhaustion requirement extending to new realms of benefit claims. Now it seemingly applies to all ERISA claims, including those that have more to do with a statutory violation or clear wrongful conduct. But, Judge Watkins noted that what we see is actually an apparition. Not all Circuit Courts of Appeals agree. “[A] split exists among the circuits as to whether exhaustion is required when a plaintiff alleges a violation of § 510.” Williams v. Walmart Stores E., LP, at *8 n.4 (M.D. Ala. Jun. 25, 2019).

In this case, Williams had alleged a § 510 claim but failed to plead exhaustion. That basically means he did not state in the complaint the magic phrase “I have exhausted all claim remedies” and he did not plead plausible facts proving it. What is the penalty for this technicality? It is death! His lawsuit could be dismissed. Despite the power of this ghost, claim remedies can be exhausted after the dismissal, if there is still time. Or, if there were plausible facts that simply were not pled then the lawsuit may be saved with an amendment. Williams was allowed to do the latter.

Resurrection after a dismissal always angers this ghost! So there is a little game that plans and insurers like to play. They bottle up the exhaustion ghost during litigation until any time limits for exhausting claim remedies have passed. Then they unleash the ghost in all its fury. When the lawsuit is dismissed for failure to exhaust claim remedies, the ability to rectify that is gone.

This is one more reason why you should hire experienced ERISA counsel – an experienced “ghostbuster.” If you or your client need assistance after an ERISA long term disability claim, short term disability claim, pension claim, retirement claim, or life insurance claim has been denied, contact an experienced ERISA disability attorney today at 800-284-9309.