Fessenden v. Reliance Standard Life Ins. Co.

DONALD FESSENDEN, Plaintiff, v. RELIANCE STANDARD LIFE INSURANCE COMPANY and ORACLE USA, INC.,GROUP LONG TERM DISABILITY PLAN Defendants.

CAUSE NO: 3:15-CV-370

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF INDIANA FORT WAYNE DIVISION

September 26, 2016

OPINION AND ORDER

This action arises under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §1001. Plaintiff seeks long term disability benefits under his employer Oracle America, Inc's¹ employee welfare benefits plan ("the Plan"). Before the Court is Plaintiff, Donald Fessenden's ("Plaintiff's") "Motion to Determine Standard of Adjudication" [DE 13] filed on February 1, 2016. Defendants responded on March 1, 2016 to which the Plaintiff replied on March 11, 2016. On June 20, 2016, the undersigned entered an Opinion and Order [DE 21] taking the Plaintiff's motion under advisement and seeking additional briefing based on the case of Halo v. Yale Health Plan, Dir. of Benefits & Records Yale Univ., 819 F.3d 42 (2d Cir. 2016). That briefing completed on August 12, 2016.² For the following reasons, the Plaintiff's Motion will beDENIED to the extent it seeks application of the de novo standard of review. The arbitrary and capricious standard will apply.

FACTUAL & PROCEDURAL BACKGROUND

The underlying facts are largely undisputed and have been previously set forth in the Court's June 20, 2016 Opinion and Order. [DE 21, at pp. 1-3]. Suffice it to say, the Defendant, Reliance Standard Life Insurance Company ("Reliance") is the fiduciary responsible for administering the Plan. The Plan provides Reliance with "discretionary authority to interpret the Plan and the insurance policy and determine eligibility for benefits" and declares that decisions by Reliance are "complete, final and binding on all parties." [DE 21, pp 1-2].

ERISA regulation 29 C.F.R. §2560.503-1, promulgated in 2000 and superseding the 1977 regulations, sets forth certain requirements for the claims procedures of eligible ERISA plans, including the timing and content of notification of benefit determinations. In the case of disability claims such as the one here, the regulations require a determination on appeal to be made within 45 days of receipt of the appeal unless written notification is made to the claimant that a 45-day extension is requested by the Plan for processing. Other regulations apply to toll the 45-day extension period but, the regulations make clear that the failure of a Plan to adhere to the regulations excuses a claimant from the requirement that his internal review procedures be exhausted before suit in federal court.

Plaintiff applied for, and Reliance denied him, long-term disability benefits. Plaintiff then appealed the initial denial. Although Reliance issued a timely initial determination denying the Plaintiff long-term disability benefits, this Court has previously determined that Reliance was untimely under the above regulations in making its determination on Plaintiff's appeal of the initialdenial.³ In the interim, Plaintiff filed the present suit and the current motion seeking a determination of the standard review applicable based upon the facts of this case. It is to this question the Court now turns.

DISCUSSION

The Supreme Court announced the general rule in Firestone that "[a] denial of benefits challenged under [ERISA] is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." 489 U.S. at 115. If the benefit plan contains a discretionary clause, then the denial of benefits is to be reviewed for abuse of discretion. Metro. Life Ins. Co. v. Glenn, 554 U.S. 105, 111 (2008) (citing Firestone, 489 U.S. at 111, 115).

Here, the Plan clearly contains a discretionary clause giving Reliance the authority to determine eligibility for benefits and to construe the Plan. Ordinarily, the existence of this discretionary clause ends the inquiry and this Court would review Reliance's denial of benefits under the arbitrary and capricious standard. However, Plaintiff argues that because Reliance did not comply with the Department of Labor's timing regulations for making its benefit determination the claim is deemed denied. Once the claim is deemed denied, the Plaintiff, citing to Nichols v. Prudential Ins. Co. of America, 406 F.3d 98, 109 (2d Cir. 2005), asserts that the appropriate standard of review, despite the discretionary language in the Plan, is de novo.

In response, Reliance invokes the doctrine of "substantial compliance" in its attempt to salvage a more deferential standard of review in this case.⁴ Under that doctrine, the courts"overlook administrators' failure to meet certain procedural requirements when the administrator has substantially complied with the regulations and the process as a whole fulfills the broader purposes of ERISA and its accompanying regulations." Rasenack ex rel. Tribolet v. AIG Life Ins. Co., 585 F.3d 1311, 1317 (10th Cir. 2009) (quoting Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 634 (10th Cir. 2003)); see also Robinson v. Aetna Life Ins. Co., 443 F.3d 389, 392-93 (5th Cir. 2006) (citing Lacy v. Fulbright & Jaworski, 405 F.3d 254, 257 (5th Cir. 2005)); Marks v. Newcourt Credit Group, Inc., 342 F.3d 444, 460 (6th Cir. 2003); Halpin v. W.W. Grainger, Inc., 962 F.2d 685, 690 (7th Cir.1992). Indeed, in cases in which the substantial compliance doctrine applies, "a plan administrator, notwithstanding his or her error, is given the benefit of deferential review of the administrator's determination about a claim under the arbitrary and capricious standard (assuming, of course, that the plan document vests the administrator with discretion), rather than more stringent de novo review." Edwards v. Briggs & Stratton Ret. Plan, 639 F.3d 355, 362 (7th Cir.2011) (citing Rasenack, 585 F.3d at 1317). However, even so "an administrator who fails to render a timely decision can only be in substantial compliance with ERISA's procedural requirements if there is an ongoing productive evidence-gathering process in which the claimant is kept reasonably well-informed as to the status of the claim and the kinds of information that will satisfy the administrator." Rasenack, 585 F.3d. at 1317 (quoting Gilbertson, 328 F.3d at 636).

Recently, however the Second Circuit decided Halo v. Yale Health Plan, Dir. of Benefits & Records Yale Univ., 819 F.3d 42 (2d Cir. 2016), wherein the Court rejected the substantial compliance doctrine as flatly contrary to the 2000 DOL regulations.⁵ In Halo, the Plaintiffcontested both the timing and content of the benefit denials from the Plan relating to her health coverage and sought to have the court review her claims under the de novo standard of review. The district court concluded that the Plan was entitled to the arbitrary and capricious standard of review because under the substantial compliance doctrine, "...the substance and timing of its denials of Halo's claims were sufficient to indicate that [the Plan] had exercised its discretion..." Halo, 819 F.2d. at 47. On review, the Second Circuit, after a thorough and complete review of the history, purpose, and content of both the 1977 and 2000 DOL regulations, reversed the district court explaining as follows:

Applying the 1977 regulation, a number of courts adopted the so-called 'substantial compliance' doctrine based on the view that 'depriving the administrator of his discretion for a minor procedural irregularity that did not substantively harm the claimant would reflect a hyper-proceduralism that is inconsistent with the flexibility and discretion contemplated by the Plan and ERISA regulations.' Gilbertson v. Allied Signal, Inc., 328 F.3d 625, 634 (10th Cir.2003). Based on this reasoning, these courts held that, 'in the context of an ongoing, good faith exchange of information between the administrator and the claimant, inconsequential violations of the deadlines or other procedural irregularities would not entitle the claimant to de novo review.' Id. at 635.

Whatever the merits of applying the substantial compliance doctrine under the 1977 claims-procedure regulation, we conclude that the doctrine is flatly inconsistent with the 2000 regulation....Courts...should be reluctant to disturb the regulatory scheme the Department has devised under authority expressly granted to it by Congress. Accordingly, we reject the substantial compliance doctrine because it is inconsistent with the Department's regulation.

Halo, 819 F.3d at 56-57; but see, Lundsten v. Creative Community Living Services, Inc. Long Term Disability Plan, 2014 WL 2440716, E.D.Wis., May 30, 2014 (declining to afford deference to the DOL's guidance under the 2000 regulations citing Chevron U.S.A. Inc. v. Natural Res. Def. Council, 467 U.S. 837 (1984) and Auer v. Robbins, 519 U.S. 452, 461 (1997)); Seger v. Reliastar Life, No. 3:04 CV 16/RV/MD, 2005 WL 2249905, at *9 (N.D.Fla. Sept. 14, 2005) (no Chevron deference because the Department was not delegated the authority to "regulate the scope of the judicial power vested by" ERISA); Towner v. CIGNA Life Ins. Co. of N.Y., 419 F.Supp.2d 172, 179 (D.Conn.2006) (no Chevron deference, citing Seger ); Goldman v. Hartford Life & Accident Ins. Co., 417 F.Supp.2d 788, 803-04 (E.D . La.2006) (no Chevron or Auer deference).

The Halo court went on to note that despite its 2000 regulations, "the Department is advising plans that certain inadvertent and harmless deviations will not trigger de novo review." Accordingly, the Court struck a balance between slight deviations in complying with the regulations and the claimants right to have regulatory procedures followed:

If the Department is advising benefit plans that it will tolerate inadvertent and harmless deviations in the processing of a particular claim, so long as the plan otherwise establishes procedures in full conformity with the regulation, we see no reason why courts

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