Reliance’s Delay in Denying Disability Claim May Affect Standard of Review

In Fessendon v. Reliance Standard Life Insurance Company, plaintiff’s claim for long term disability benefits under an ERISA governed plan was denied. There is a dispute between the parties as to whether the court should apply an abuse of discretion standard or a de novo review. Plaintiff filed a motion arguing that the court should review his ERISA claim de novo since Reliance did not issue its denial of his claim within the time required under ERISA. Reliance claimed it substantially complied with ERISA time requirements, so an abuse of discretion standard should still apply to the review.

After briefing was complete, but before the court issued its order, a Second Circuit case was published discussing in depth the doctrine of substantial compliance in ERISA cases. The Court did not issue a decision, but directed the parties to file briefs discussing how the new case applies.

Undisputed Facts

Reliance provided disability insurance benefits to plaintiff, an employee of Oracle America, Inc. The policy had a clause giving Reliance “discretionary authority to interpret the Plan and the insurance policy and determine eligibility for benefits.” Reliance’s decision is “complete, final and binding on all parties.” Generally, when a policy has such a clause and a plaintiff files an ERISA lawsuit after a denial, the court reviews the plan’s denial of a claim under an abuse of discretion standard and will only reverse the decision if it was arbitrary and capricious.

In this case, Plaintiff was granted short term disability by Reliance, but his claim for long term benefits was denied and Plaintiff appealed. The appeal was denied a few days after the deadline by which it was required, under ERISA laws, to issue its decision. While waiting for the decision, the plaintiff filed the ERISA lawsuit claiming her appeal was deemed denied since Reliance had missed its deadline.

The court, in a footnote, agreed with plaintiff that Reliance missed the deadline for deciding his claim. The question was what affect that had on the applicable standard of review. Normally, a discretionary clause such as the one Reliance had in the policy would trump de novo review. But, since Reliance missed its denial deadline, plaintiff argued his claim was “deemed denied” which allowed the court to apply the higher standard of review.

De Novo Review is Triggered When the Plan Missed the ERISA Established Decision Deadline

In his argument for de novo review, the plaintiff relied on a Second Circuit case which held that when a plan administrator misses a decision making deadline, the claim is deemed denied which triggers de novo review even if the plan has a discretionary clause. De novo review allows the court to make its own decision on whether a claimant qualifies for disability benefits without giving deference to the plan administrator’s decision. Of course, Reliance argued that it had substantially complied and therefore, the abuse of discretion standard should still apply. The plaintiff disagreed with Reliance’s substantial compliance argument.

Substantial Compliance

After briefing was complete, the Second Circuit published a case discussing the application of substantial compliance to a situation similar to the one before the court. Hence, the court did not make a ruling, but required the parties to provide briefing on what affect the newly-decided case had on their situation.

This case is not being handled by our office, but we believe it is instructive for those who have a dispute concerning the proper standard of review. If you have a question about a similar matter, or any matter relevant to your disability claim, contact one of our lawyers for a free consultation and case evaluation.

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