Participant May Sue Insurer Before Exhausting Administrative Remedies

The U.S. District Court for the District of Arizona has ruled, in Greiff vs. Life Insurance Company of North America, that a long-term disability plan participant need not exhaust an insurer's administrative remedies before suing in federal court, unless the insurance contract and other relevant communications specifically require such exhaustion.

Background. The participant made a claim for benefits under a long term disability plan which was denied by the insurer. Rather than appealing the adverse determination, she then sued the insurer in federal court.

The insurer attempted to dismiss the lawsuit, claiming that the participant had failed to exhaust the required administrative remedies.

District Court. According to the court, "ERISA does not explicitly require a participant or beneficiary to exhaust administrative remedies prior to filing suit, but federal courts have held, based on ERISA's text and legislative history, that an ERISA plaintiff claiming a denial of benefits must avail himself or herself of a plan's own internal review procedures before bringing suit in federal court." However, in the Ninth Circuit (where this court is located), this exhaustion requirement applies only if the relevant documents require exhaustion.

The court noted that an earlier Ninth Circuit decision had said that, "[W]here plan documents could be fairly read as suggesting that exhaustion is not a mandatory prerequisite to bringing suit, claimants may be affirmatively misled by language that appears to make the exhaustion requirement permissive when in fact it is mandatory as a matter of law."

The court further noted that the language in the insurance contract and the denial letter to the participant indicated that a claimant has a "right to appeal" a claim denial through the administrative appeal process. According to this court, "[T]elling a claimant that she has 'a right to' an appeal is not the same as telling a claimant she must appeal or she loses her right to challenge the decision in court."

The court continued, "the language indicates that a claimant has a right to bring a civil action under ERISA §502(a) if an administrative appeal is denied, but it does not specify that a claimant does not have a right to bring a civil action under any other circumstances. Stating that a claimant has a right to bring a civil action if an administrative appeal is denied does not foreclose the possibility that a claimant also has a right to bring a civil action after waiving her right to an administrative appeal."

The court therefore refused to dismiss the lawsuit.