Linda Chavis filed a complaint against Cigna Group Insurance and Life Insurance Company of North America (LINA) on June 24, 2009, alleging that the insurance company had breached two disability insurance contracts by refusing to pay her claims for short-term disability (STD) insurance and for long-term disability (LTD) insurance. While Cigna filed a motion to dismiss the complaint, Chavis stated in her complaint that she and her employer had paid all the required premiums for both policies, but she had been wrongfully denied benefits for both policies.
In her complaint, Chavis, a registered nurse, claimed that she became disabled in June 2008 because of back problems that prevented her from fulfilling her role as a nurse. According to the disability definitions of both her short-term and long-term disability policies, she fit the description of a disabled individual. She was a) unable to perform all the material duties of her regular occupation, and b) she was unable to earn 80% or more of her covered earnings from working in her regular occupation.
Here’s how this case began. On June 9, 2008, Chavis applied for short term disability benefits over the phone. One month later, on July 18, LINA denied Chavis’ initial claim because they felt that there wasn’t enough medical information to support her claim. Chavis appealed. Her appeal was denied on November 10. Chavis appealed LINA’s decision once again on February 9, 2009.
On February 22, Chavis applied for long-term disability benefits. Based on the fact that they had already denied STD benefits, LINA denied this application as well on March 5. Chavis appealed.
Meanwhile, Chavis appeal for the short-term disability benefits was still under review. On March 13, this appeal was denied. Chavis appealed again for a third time. LINA initially rejected the appeal.
Having reached the conclusion that LINA was not going to approve her claim, Chavis filed the June 24 complaint in the Charleston Division of the United States District Court for the District of South Carolina. On July 13, 2009, LINA reversed its decision to deny STD benefits, and paid Chavis for 26 weeks of short-term disability. At the same time, LINA also reopened its review of Chavis’ application for LTD benefits. Three days later, on July 16, LINA claimed it received notice of Chavis’ complaint that had been filed in state court on June 24.
LINA says that it reevaluated Chavis’ LTD benefits claim, which resulted in a denial on August 20, 2009. Chavis did not appeal this decision. LINA asked the court for a motion to dismiss Chavis’ complaint because she had not submitted a written appeal of the August 20 denial, thus failing to exhaust her administrative remedies. Chavis countered with the argument that it would have been futile to do so. LINA also argued that Chavis’ failure to appeal the August 20 denial meant the Court should dismiss Chavis’ claims because she had failed to state a claim upon which relief could be granted. A motion to stay (suspend) proceedings was requested as an alternative while all the avenues of administrative remedy were exhausted.
In the end, the Court looked at one thing – the letter Chavis received on March 5, 2009, denying her long term disability benefits, the decision she did appeal. LINA argued in court that this was not an official denial of benefits letter. The court ruled otherwise. The letter used the word “determined”, but it failed to meet the requirements of ERISA which clearly states that a benefits denial letter must include the following information:
- It must give specific reason for why benefits were denied.
- It must identify the specific plan provisions used to make the determination.
- It must describe any material or information that is needed to change the determination.
- It must also describe the procedures used to review the claim and a clear breakdown of procedures the claimant needs to follow to appeal a decision and time limits for following those procedures.
When the March 5 letter was compared to this ERISA requirement it failed the test of substantial compliance with the spirit of the regulation. The judges concurred with Chavis’ contention that that initial LTD benefits denial violated the procedure set forth in 29 C.F.R § 2560.503-1(g). The letter only told her that she was not eligible, but stated no reason as to why she wasn’t eligible. It told her that her claim was closed, but did not tell her what she should do to appeal the closure of her case. All she was told to do was call if she had any questions.
Based on a ruling from Ellis v. MetLife Ins. Co., the Court deemed that Chavis had “exhausted the administrative remedies available under the plan.” Like MetLife, LINA had failed to follow “reasonable claims procedures.” LINA argued that this letter was not written to notify Chavis of an adverse benefit determination. It was only to inform her of her ineligibility for LTD benefits in light of the denial for STD benefits. Certainly, Ms. Chavis would not have seen this distinction. Neither did the Court.
The Court denied LINA’s motions for dismissal or a stay of Chavis’ complaint. Ms. Chavis’ right to pursue her lawsuit for breach of contract under ERISA was approved on December 8, 2009.