Wallace v. Oakwood Healthcare, Inc.

954 F.3d 879

Cheryl L. WALLACE, Plaintiff-Appellee,

v.OAKWOOD HEALTHCARE, INC., et al., Defendants,Reliance Standard Life Insurance Company, Defendant-Appellant.

No. 18-2316

United States Court of Appeals, Sixth Circuit.

Argued: October 23, 2019

Decided and Filed: March 31, 2020

CLAY, Circuit Judge.

Plaintiff Cheryl L. Wallace filed suit against Beaumont Healthcare Employee Welfare Benefit Plan, formerly known as Oakwood Healthcare, Inc. Employee Welfare Benefit Plan; Hartford Life and Accident Insurance Company; and Reliance Standard Life Insurance Company under the Employee Retirement Income Security Act of 1974, § 502(a)(1)(b), codified at 29 U.S.C. § 1132(a)(1)(B), after she was denied long-term disability benefits under her employer’s employee welfare benefit plan. Defendants Beaumont Healthcare Employee Welfare Benefit Plan and Hartford Life Insurance Company were subsequently dismissed, and the action proceeded against the only current Defendant, Reliance Standard Life Insurance Company. The district court granted Plaintiff judgment on the administrative record. Defendant now appeals the district court’s judgment. For the reasons set forth below, we AFFIRM IN PART and VACATE IN PART the district court’s judgment, and REMAND for further proceedings consistent with this opinion.

BACKGROUND

Factual Background

Plaintiff worked as a registered nurse at Oakwood Healthcare, Inc. Health System ("Oakwood") starting in 2005.¹ As an Oakwood employee, Plaintiff participated in Oakwood’s employee welfare benefit plan, the Oakwood Healthcare, Inc. Employee Welfare Benefit Plan, which provided long-term disability ("LTD") benefits to eligible employees. This plan is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq.

This dispute began when Plaintiff’s employer decided to switch the insurer responsible for its employee welfare benefit plan. The plan was funded and insured by Hartford Life and Accident Insurance Company ("Hartford") through December 31, 2012, when Oakwood terminated its contract with Hartford. Effective January 1, 2013, Defendant became the plan’s funder and insurer. Defendant’s group policy and the document detailing that policy are subject to ERISA. Defendant also served as the plan’s claims review fiduciary under ERISA.

In September 2012, Plaintiff contracted an illness while traveling in Belize. Plaintiff’s health deteriorated thereafter. She suffered from medical issues including hypothyroidism, multiple hormone deficiencies, hypotension, hypopituitarism, immune suppression disorder, severe joint pain, and tachycardia, an arrhythmia of the heart. As a result, beginning in October 2012, Plaintiff took medical leave from Oakwood. While Plaintiff was out on medical leave, Oakwood’s previous contract with Hartford ended and its new contract with Defendant began. Plaintiff returned to work on April 7, 2013, but soon had to take medical leave again, starting on May 13, 2013.² Plaintiff has not returned to work since.

Plaintiff subsequently filed a claim for LTD benefits with Defendant. Defendant investigated Plaintiff’s claim and, in the process, developed the administrative record now before this Court. After its investigation, Defendant sent Plaintiff a letter denying her benefits, citing the pre-existing condition provision of its plan document as barring her claim. In that letter, Defendant detailed how Plaintiff could request a review of her claim and the rights she would be entitled to in that review process. The letter informed her that "[her] failure to request a review within 180 days of [her] receipt of this letter may constitute a failure to exhaust the administrative remedies available under [ERISA], and may affect [her] ability to bring a civil action under [ERISA]." (Admin. R., R. 42-1 at PageID #821.) Defendant’s underlying plan document did not describe either the claim review process or an exhaustion requirement.

Following receipt of her denial, Plaintiff’s lawyer communicated with an employee of Defendant who worked on her investigation. Plaintiff’s lawyer apparently emailed that employee regarding a note in Defendant’s claims file stating that Defendant had contacted a broker to determine whether Plaintiff had filed a claim with Hartford. The note indicated that the broker said Plaintiff had not filed a claim and it would have been denied if she had. Plaintiff’s lawyer suggested he was "inclined to believe your analysis that her LTD claim should be submitted to Hartford, the prior LTD carrier," (Admin. R., R. 42-3 at PageID #1094), although the evidence in the record does not demonstrate that Defendant’s employee made any such suggestion. Nevertheless, Plaintiff’s counsel asked if "anyone else (other than your attorneys)" had suggested the claim should be filed with Hartford. (Id. ) The employee responded that all of its documents from Hartford were included in the claims file and that "[t]here was no discussion with Reliance/Matrix attorneys during the review and decision of Ms. Wallace’s claim for benefits." (Admin. R., R. 42-1 at PageID #823.)

Plaintiff subsequently submitted a claim to Hartford, which was also denied. She appealed that decision internally and received another denial. Plaintiff did not submit a written request seeking review of Defendant’s decision, but instead filed this lawsuit on February 19, 2016.

Procedural Background

Plaintiff filed suit against Defendant under ERISA § 502(a)(1)(B), codified at 29 U.S.C. § 1132(a)(1)(B). Plaintiff also originally asserted a violation of procedural due process and a claim for equitable relief and named the Oakwood Healthcare, Inc. Employee Welfare Benefit Plan and Hartford as additional defendants. These claims and parties have since been dismissed.

Defendant moved to dismiss Plaintiff’s current claim under Federal Rule of Civil Procedure 12(b)(6), arguing that Plaintiff failed to exhaust her administrative remedies prior to filing the lawsuit and therefore could not pursue a claim under ERISA. The district court denied Defendant’s motion as to this claim, finding that Plaintiff did not need to exhaust her administrative remedies because Defendant’s plan document did not require exhaustion.

After multiple additional briefings and Defendant’s filing of the administrative record, the parties filed cross-motions for judgment on that administrative record. The district court granted Plaintiff’s motion for judgment and denied Defendant’s cross-motion. The district court found that Defendant wrongly determined that Plaintiff’s LTD claim was barred under its policy, as Plaintiff was covered by the policy’s "Transfer of Insurance Coverage" provision, and that Plaintiff was entitled to an award of LTD benefits and attorneys’ fees. The district court subsequently entered an opinion and order, awarding Plaintiff monthly back benefits through the present, post-judgment benefits, and attorneys’ fees.

Defendant’s timely notice of appeal followed.

DISCUSSION

Defendant argues on appeal: (1) that the district court erred in determining Plaintiff was not required to exhaust her administrative remedies prior to filing suit, (2) that the district court erred in overturning Defendant’s denial of LTD benefits, (3) that the district court improperly awarded and calculated benefits to Plaintiff, and (4) that the district court abused its discretion in awarding Plaintiff attorneys’ fees. We address these arguments in turn.

I. Exhaustion of Administrative Remedies

Standard of Review

In its decision, the district court did not simply grant Plaintiff an exception to the application of exhaustion principles, but found that exhaustion principles did not apply to Plaintiff’s benefits claim. (See Op. & Order Granting & Den. Def.’s Mot. Dismiss, R. 36 at PageID #670 ("For these reasons, this Court concludes that Plaintiff was not required to exhaust any administrative remedies prior to filing this lawsuit").) The question of whether exhaustion principles apply to Plaintiff’s benefits claim is a question of law that this Court reviews de novo. Hitchcock v. Cumberland Univ. 403(b) DC Plan , 851 F.3d 552, 559 (6th Cir. 2017) (citing Harrow v. Prudential Ins. Co. of Am. , 279 F.3d 244, 248 (3d Cir. 2002) ; Diaz v. United Agric. Emp. Welfare Benefit Plan & Tr. , 50 F.3d 1478, 1483 (9th Cir. 1995) ("Because the potential applicability vel non of exhaustion principles is a question of law, we consider it de novo. But if that question receives an affirmative answer, the District Court’s decision not to grant an exception to the application of those principles is reviewed for an abuse of discretion.")).

Analysis

The district court found that Plaintiff was not required to exhaust her administrative remedies because Defendant’s plan document did not affirmatively require exhaustion, but "[t]his court can affirm a decision of the district court on any grounds supported by the record, even if different from those relied on by the district court," Brown v. Tidwell , 169 F.3d 330, 332 (6th Cir. 1999). Defendant contends that exhaustion is required whether or not it is explicitly stated in a plan document and that none of Plaintiff’s asserted reasons to excuse this requirement are availing. Plaintiff responds that: (1) exhaustion was not required because Defendant’s policy does not call for it; (2) her administrative remedies should be deemed exhausted because Defendant did not comply with the ERISA requirement to establish a reasonable claims procedure; (3) she attempted to exhaust her remedies but was misled by Defendant into filing her claim with Hartford instead; and (4) appealing her decision internally would have been futile.

For the reasons set forth below, we conclude that, because Defendant did not describe any internal claims review process or remedies in its plan document, the plan did not establish a reasonable claims procedure pursuant to ERISA regulations; therefore, Plaintiff’s administrative remedies must be deemed exhausted....