Benefit Administrator Loses Discretionary Authority Because Reply to Benefit Appeal is Tardy

By Alan M. Levy - Lindner & Marsack, S.C.

June 28, 2019

The U.S. Department of Labor’s regulations for administration of ERISA include specific deadlines for deciding appeals from rejected benefit claims. In general, the plan administrator must decide disability benefit appeals within 45 days of their filing, but can apply an additional 45 days if “special circumstances” exist. 29 C.F.R. § 2560.503-1(i)(1)(i) & (i)(3)(i) (2002). Failure to timely notify the employee of that decision allows the employee to sue the plan in federal court as if no reason had been given for denial of the appeal.

In Fessenden v. Reliance Standard Life Ins. Co., Case No. 18-1346 (7th Cir. June 25, 2019), the United States Court of Appeals for the Seventh Circuit held that the tardiness of third party administrator Reliance prevented the plan from defending as reasonable discretionary determinations its denials of Fessenden’s claim and appeal.

When a plan document authorizes the administrator to interpret plan rules and adjudicate claims and appeals, courts must defer to those decisions unless they are “arbitrary and capricious.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989). Without that authority, the administrator’s decisions are reviewed “ de novo,” with no deference given to its reasons and explanations for the denial. Reliance did not provide a full written decision for denying Fessenden’s appeal until after the extended 90 day decision-making period had ended and Fessenden had already filed suit. Therefore, the Seventh Circuit ruled, Reliance had not made an authorized decision which was entitled to deference.

Reliance contended it had substantially complied with the regulation, citing decisions which excused some technical errors involving “prescribed procedures” such as the wording of a letter which still provided a clear explanation for a denial. However, the Seventh Circuit rejected this position, saying “the ‘substantial compliance’ exception does not apply to blown deadlines.”

The impact of the administrator’s tardiness is significant. Deference requires the reviewing court to accept the administrator’s determination even if the court would have decided otherwise, so long as it was not arbitrary or capricious. The failure to provide a timely rejection of a benefit appeal is akin to a default: the court which reviews a tardy decision treats that decision as if it had never been made, and the plan must, therefore, prove that there was virtually no reasonable way to deny the employee’s claims. Under the de novo standard applicable because of the “blown deadline,” the court can order its own, different decision no matter how reasonably the administrator had acted earlier in the process.

The Seventh Circuit has held that “a deadline is a bright line;” a “late decision to deny ... benefits is not entitled to deference.” The ERISA time requirements for processing benefit claims and appeals cannot be avoided because the decision “was only a little bit late.”

The attorneys at Lindner & Marsack are available to assist you with any questions or issues you may have in the administration of employee benefit plans and compliance with ERISA and its regulations.