Is Exhaustion of Remedies Required before filing an ERISA Lawsuit?

In Deborah Holmes v. The Prudential Insurance Company and Bekaert Corporation, the Plaintiff was employed by the Bekaert Corporation (Bekaert) when she was injured at work. She filed a lawsuit unrelated to ERISA and her employer settled with her. In addition, Plaintiff and Bekaert entered into a separation agreement in which Plaintiff signed a general release of legal claims including her ERISA claims. Bekaert paid Plaintiff $250.

While still employed by Bekaert, Plaintiff filed a claim with Prudential for long-term disability (LTD) benefits under the terms of Bekaert’s employee benefit plan which provided long term disability insurance with the disability insurance benefit administered by Prudential. Initially, her claim was approved but later terminated. In its letter informing her of the termination, Prudential informed Plaintiff that she had the right to administratively appeal the denial. Instead, she filed this ERISA lawsuit in the United States District Court for the Western District of Arkansas, Fort Smith Division.

In her lawsuit, Plaintiff claimed that the release she signed for her severance should not be enforced under ERISA law. She also claimed that Prudential erred when it terminated her LTD benefits. Both defendants, Bekaert and Prudential, filed motions for summary judgment. The Court gave Plaintiff an opportunity to respond, but she did not do so. The Court then granted summary judgment for both defendants.

Severance Agreement is Enforceable Under ERISA

The Court began its analysis by acknowledging that “release of legal claims in exchange for severance benefits are enforceable under ERISA.” The general release met all the elements of contract formation under Arkansas law including: 1) competent parties; 2) subject matter; 3) legal consideration; 4) mutual agreement; and 5) mutual obligation.

The next thing the Court considered was whether the severance agreement was enforceable under ERISA. For that analysis, the Court considered the totality of the circumstances by evaluating specific criteria established by the U.S. Court of Appeals for the Eighth Circuit which are:

The Court held that the severance agreement met all the criteria. The Court looked carefully at the small amount of money, $250, which seemed too little for a severance package, but noted Plaintiff had been fairly compensated for a workers’ compensation injury, so that balanced out the low severance pay.

The Court held that “There is no evidence of overreach or improper conduct by Bekaert. The release appearing valid and enforceable, summary judgment must be entered in Bekhaert’s favor.”

Plaintiff Failed to Exhaust Her Administrative Remedies Offered by Prudential When it Terminated Her LTD Benefits

While employed by The Bekaert Corporation, Plaintiff applied for LTD benefits under its employee benefit plan which was administered by Prudential. Initially, her claim was approved. Later, it was terminated.

In its letter informing Plaintiff of the termination, Prudential informed her that she had 180 days to appeal the adverse ruling. Prudential provided “unchallenged evidence that Plaintiff did not do so.” Under ERISA, if a claimant does not exhaust all administrative remedies, a claim for relief will not go forward.

The Court concluded that since “Plaintiff failed to pursue and exhaust her administrative remedies. Her claim against Prudential is barred, and summary judgment must be entered in Prudential’s favor.”

This case was not handled by our office, but it may provide claimants guidance in their pursuit of an ERISA claim in conjunction with a severance agreement and to emphasize the importance of exhausting administrative remedies.

If you need assistance with a similar matter, or any aspect of your disability claim or disability insurance claim denial, please contact a disability insurance attorney at our disability insurance law firm of Dell & Schaefer for a free consultation.

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