The Second Circuit Court of Appeals, in McQuillin v. Hartford Life & Accident Ins. Co., has ruled that a claimant exhausted his plan’s administrative remedies and was, therefore, entitled to sue under ERISA, because the plan failed to make a final benefit determination within 45 days of his appeal.
Law. ERISA requires claims administrators to provide claimants with notification of the plan’s “benefit determination” within 45 days of an appeal being filed, assuming the absence of special circumstances that require an extension. If the claims administrator does not determine the claimant’s benefits nor extend its review time within this 45-day window, the claimant is deemed to have exhausted the plan’s administrative remedies and may file a lawsuit in federal court.
Background. The claimant applied for disability benefits due to the effects of prostate cancer. The plan’s claims administrator denied his claim for lack of sufficient evidence of disability, and informed the claimant that he could appeal the denial. The claims administrator also explained that it would decide his appeal within 45 days, and that if he disagreed with the decision, he could sue.
In turn, the claimant filed an appeal and submitted additional evidence in support of his appeal. Twelve days later, the claims administrator informed the claimant that it had overturned its original denial and had forwarded the claim to its claims department, which would review the evidence, determine whether the claimant was disabled, and issue a new determination. However, the claim was not resolved within the 45-day time limit.
The claimant responded to the claims administrator’s delay by filing a lawsuit in federal court seeking benefits under his plan. The district court dismissed the claimant’s lawsuit, reasoning that he had not exhausted the plan’s administrative remedies because the claims administrator was still reviewing the appeal when he sued.
Second Circuit. On appeal, the Second Circuit reversed the district court’s decision, finding that the claimant was deemed to have exhausted the plan’s administrative remedies because the claims administrator had failed to provide a final decision on his benefits within 45 days of his administrative appeal. The Second Circuit noted that under ERISA’s applicable claims regulations, the “plan’s remedies are deemed exhausted if the plan administrator does not ‘strictly adhere’ to [the regulation’s] requirements.” The Second Circuit further explained that this included the requirement that the claims administrator must provide a “timely benefit determination on review”, i.e., within 45 days of the initial denial, and that a “valid benefit determination on review must determine whether a claimant is entitled to benefits.”
The Second Circuit further observed that the use of the term “benefit determination” in the claims regulation clearly meant that “[i]t is the claimant’s benefits that the claims administrator had 45 days to decide, not only the appeal or some other aspect of the claim.” The court stated that the regulation’s appeal process was “intended to result in a final determination of benefits,” and that the strict time limits set forth in the regulations could be rendered meaningless if the claims administrator could remand the case to their own claims department to consider or reconsider evidence, thus delaying resolution indefinitely.
The Second Circuit concluded by noting that its reading of the regulation was supported by the history and purpose of ERISA’s claims regulation. The court explained that ERISA was enacted to serve dual purposes: to “ensur[e] fair and prompt enforcement of rights” under ERISA plans and “encourage [the] creation of such plans.” The court observed that the regulation sought to balance these two purposes by preventing plans from “impos[ing] an unlimited number of levels of administrative appeals of denied claims” before the claimant was entitled to file a lawsuit.
Based on the foregoing, the Second Circuit determined that “[a] ‘benefit determination on review’ must finally decide the claimant’s benefits within 45 days, assuming the absence of special circumstances that require an extension.” Accordingly, the Second Circuit concluded that because the plan’s claims administrator failed to determine the claimant’s benefits within this 45-day window, the claimant “was deemed to have exhausted his plan remedies and could bring suit in federal court.”