Cruz v. Reliance Standard Life Ins. Co.

ELDIE L. CRUZ, M.D., Plaintiff, v. RELIANCE STANDARD LIFE INSURANCE COMPANY, Defendant.

No. CIV 18-0974 RB/SCY

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

December 9, 2020

MEMORANDUM OPINION AND ORDER

Plaintiff Eldie Cruz, M.D. and Reliance Standard Life Insurance Company (Reliance) have filed cross-motions for summary judgment regarding Cruz's claim arising under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461. Reliance denied Cruz long-term disability (LTD) benefits under an employer-sponsored insurance plan. Cruz did not file a timely appeal of the denial. Consequently, Reliance argues that Cruz failed to exhaust his administrative remedies and that his lawsuit should be dismissed. As discussed below, however, Reliance failed to substantially comply with ERISA's procedural requirements, and Cruz was prejudiced thereby. Thus, Cruz's failure to exhaust is deemed excused. Further, because Reliance violated ERISA's procedural requirements, the Court finds that a de novo standard of review governs Cruz's claim. The Court will direct the parties to submit supplemental briefing before it renders a decision on the merits of Cruz's benefits claim.

I. Background

Cruz worked as a general surgeon with Lovelace Medical Group (Lovelace). (See Administrative Record (AR)¹ at 172, 196.) Through his employment, Cruz participated in adisability insurance plan issued and administered by Reliance. (See id. at 1, 155-59.) On November 10, 2015, Mr. Cruz self-admitted to a 30-day drug rehabilitation program due to substance and alcohol abuse. (See id. at 156, 209.) In the months following, he continued to experience symptoms and limitations related to his substance and alcohol abuse. (See, e.g., id. at 321, 343.) Eventually, Cruz filed a claim for LTD benefits, for which Reliance confirmed receipt on March 24, 2016. (Id. at 118.)

Reliance's communication log reflects that a representative spoke with Cruz on October 14, 2016, and explained that Reliance determined Cruz was not totally disabled as of May 1, 2016. (Id. at 75.) Cruz "disagreed with this assessment[] and stated that he may need to get an attorney." (Id.) The representative "advised that [Cruz] does have the option to submit a written appeal, and that a letter will be sent shortly with more information." (Id.) Reliance sent this letter on October 19, 2016. (See id. at 155.)

Over two hundred days passed from March 24, 2016, the day Reliance confirmed receipt of Cruz's claim for LTD benefits, to October 19, 2016, the day it sent him written notice of denial. Reliance stated that Cruz did "not meet the requirements of the group Policy definition for Total Disability from [his] Regular Occupation through the end of the Elimination Period."² (Id. at 155.) The "Elimination Period . . . begins on the first day of Total Disability[,]" consists of "180 consecutive days of Total Disability[,]" and is a period "for which no benefit is payable." (Id. at 156.) For Cruz to be eligible for LTD benefits, he must have been considered Totally Disabled from November 10, 2015, through the end of the 180-day Elimination Period: May 8, 2016. (See id.) Reliance set out the information it considered in finding that Cruz "fail[ed] to establish that[he was] unable to perform the material duties of [his] Regular Occupation throughout [the] 180-day Elimination Period." (See id. at 157-58.)

Reliance asserts that under the plan, "'Regular Occupation' means the occupation the Insured is routinely performing when Total Disability begins. [Reliance] will look at the Insured's occupation as it is normally performed in the national economy, and not the unique duties performed for a specific employer or in a specific locale." (Id. at 156.) A rider applicable to Class 2, physicians, however, contains a different definition.

"Regular Occupation" with respect to physicians means the Insured's general or sub-specialty in the practice of medicine during the [36] months immediately before his/her Total Disability begins and for which he/she is certified by the American Board of Medical Specialties. If the specialty or sub-specialty in which the Insured is practicing is not recognized by the American Board of Medical Specialties during the [36] months immediately before his/her Total Disability begins, he/she will be considered a general practitioner.

(Id. at 38.) A Reliance representative referred to this second definition in communications with Lovelace. (See id. at 196.) Record evidence demonstrates that Cruz was considered a surgeon (see, e.g., id. at 172, 196), and in at least one internal communication note, Reliance states that Cruz was a Surgeon. (See id. at 69, 375-77.) In its benefits determination, however, Reliance used the first definition of Regular Occupation and found that Cruz was a Physician, General Practice. (See id. at 156.)

The denial letter apprised Cruz of his right to submit a "written request for review" of the decision "within 180 days of" receipt of the letter. (Id. at 159.) It informed him of the address to send the request, what documents and information to include, and how Reliance would conduct the review. (Id.) It also cautioned that a "failure to request a review within 180 days of [his] receipt of [the] letter may constitute a failure to exhaust the administrative remedies available under[ERISA], and affect [his] ability to bring a civil action under [ERISA]." (Id.; see also id. at 454-56 (describing the appeal process).)

Cruz emailed Reliance on October 19, 2016, to request a copy of the policy. (Id. at 76.) The communication log reflects no further communication from Cruz until his attorney submitted a notice of appeal in August 2018. (See id. at 76, 448-49.) Reliance denied the appeal because the 180-day timeframe had expired. (See id. at 77.)

II. Standard of Review

ERISA affords plan beneficiaries the right to have a federal court review a denial of benefits. 29 U.S.C. § 1132(a)(1)(B). By default, the "standard of review for denial of benefits challenged under 29 U.S.C. § 1132(a)(1)(B) is de novo," but "when the benefit plan gives the plan administrator or fiduciary the discretionary authority to determine eligibility for benefits or to construe the terms of the plan, that determination is reviewed for abuse of discretion." Fitzgerald v. Long-Term Disability Plan of Packard's on the Plaza, Inc., No. 11-CV-956 JEC/ACT, 2013 WL 12178732, at *4 (D.N.M. Apr. 4, 2013) (citing Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989); Trujillo v. Cyprus AMAX Minerals Ret. Plan Comm., 203 F.3d 733, 736 (10th Cir. 2000)). Where there are time limits on the plan administrator's discretion and the administrator fails to render a timely decision, "the claimant shall be deemed to have exhausted the administrative remedies by operation of law and the 'Firestone deference no longer applies.'" Id. (quoting Rasenack v. AIG Life Ins. Co., 585 F.3d 1311, 1315, 1318 (10th Cir. 2009)); see also 29 U.S.C. § 2560.503-1(l) (2017). "Thus, the failure to render a final decision in a timely manner warrants a de novo standard of review." Fitzgerald, 2013 WL 12178732, at *4 (citing Rasenack, 585 F.3d at 1315).

Under the de novo standard, the Court reviews a denial "to determine whether theadministrator made a correct decision." Id. (quoting Niles v. Am. Airlines, Inc., 269 F. App'x 827, 832 (10th Cir. 2008)). In this context, the de novo review standard "is whether the plaintiff's claim for benefits is supported by a preponderance of the evidence based on the court's independent review.'" Id. (quoting Niles, 269 F. App'x at 833). The Court independently weighs "the facts and opinions in . . . [the administrative record] to determine whether the claimant has met [his] burden of showing [he] is disabled within the meaning of the policy." Id. (quoting Orndorf v. Paul Revere Life Ins. Co., 404 F.3d 510, 518 (1st Cir. 2005)). The Court does not grant "deference to administrators' opinions or conclusions based on these facts." Id. (quoting Orndorf, 404 F.3d at 518).

III. Analysis

A. Cruz's administrative remedies are deemed exhausted.

"Although ERISA contains no explicit exhaustion requirement, courts have uniformly required that participants exhaust internal claim review procedures provided by the plan before bringing a civil action." Holmes v. Colo. Coal. for Homeless Long Term Disability Plan, 762 F.3d 1195, 1203-04 (10th Cir. 2014) (citing Heimeshoff v. Hartford Life & Accident Ins. Co., 571 U.S. 99, 105 (2013)). The parties agree that the plan here calls for a two-step review process: the initial benefits determination and the appeal. Cruz engaged in first-level review with Reliance, but he did not timely appeal the unfavorable decision. "Unless [Cruz] can establish some exception to the exhaustion requirement, [his] civil action is barred by [his] failure to engage in a second-level review." See id. at 1204.

Courts may excuse a claimant's failure to exhaust in three circumstances: (1) "when resort to administrative remedies would be futile"; (2) "when the remedy provided is inadequate"; and (3) when the claimant is "deemed to have exhausted" his "administrative remedies if a plan hasfailed to establish or follow claims procedures consistent with the requirements of ERISA" pursuant to 29 C.F.R. § 2560.503-1(l)³ (the "deemed-exhausted" provision). Id. (citing McGraw v. Prudential Ins. Co. of Am., 137 F.3d 1253, 1263 (10th Cir. 1998)). Cruz claims that exhaustion is warranted under the third exception because Reliance failed to follow ERISA regulations in two ways: first, by failing to render a timely decision under 29 C.F.R. §. 2560.503-1(f)(3)⁴; and second, by failing to provide notice of extensions that satisfied § 2560.503-1(f)(3). (See Doc. 125 at 9.)

The Court agrees, and Reliance does not dispute, that its decision was untimely. (See Doc. 127-2 at 17.) Paragraph (f)(3) provides that the plan administrator should decide a claim "not later than...