If you have an ERISA long-term disability claim, you cannot file a lawsuit challenging an insurer’s denial of benefits until you have exhausted your administrative remedies. So, even if the insurer, or plan administrator, denied your claim for long-term disability benefits, you still need to take the time to file an administrative appeal, unless you do not want pursue your right to disability benefits.
There is an exception, however, to the rule that you must appeal the initial denial. If filing an appeal would be “futile,” a court will allow a disability lawsuit to proceed even if the claimant did not exhaust his or her administrative remedies. This exception is called the “futility doctrine,” and it is recognized by the United States Court of Appeals for the Sixth Circuit (the circuit that includes all the federal courts in Tennessee).
In Dozier v. Sun Life Assur. Co. of Canada (2006), the Sixth Circuit applied the futility doctrine to excuse the claimant’s failure to exhaust his administrative remedies. In that case, the claimant had two ERISA policies with Sun Life: A long-term disability policy that provided coverage if the claimant was unable to perform the material and substantial duties of his own occupation; and a life insurance policy that provided a waiver of premium benefit to disabled employees, which the policy defined as employees unable to perform the material and substantial duties of any occupation.
In the context of disability claims, the “any occupation” standard is more difficult for claimants to meet. The reason is that, under this standard, a claimant must show that his or her disability prevents him or her from performing any occupation for which he or she is qualified, which would likely include a range of jobs that are less demanding than their current one. In contrast, the “own occupation” standard is easier a claimant because he or she simply needs to demonstrate that he or she cannot satisfy the specific demands of his or her particular occupation.
This distinction between the two standards was critical in Dozier. Under his long-term disability plan, the claimant had only to meet the easier “own occupation” standard. The stricter “any occupation” standard, however, applied to his life insurance plan. Sun Life denied the claimant disability benefits and denied his claim that his life insurance policy premiums should be waived. The claimant then appealed the denial of his disability benefits, but not the denial of his claim under the life insurance plan. Sun Life denied his appeal and informed him that all of his administrative remedies were “exhausted,” as it related to his long-term disability claim.
The claimant then decided not to appeal the denial of his claim related to the waiver of premiums for his life insurance. After all, since Sun Life had denied his appeal for disability benefits, why would it overturn its denial of his waiver of premium claim to which a stricter standard for recovery applied?
The claimant filed suit in federal district court, challenging, inter alia, the denial of his waiver of premium claim. That court dismissed his waiver of premium claim because he did not exhaust the administrative remedies, and the time for seeking an administrative review (or appeal) of his denial had expired.
Claimant appealed the district court’s decision to the Sixth Circuit which held that his failure to exhaust his administrative remedies with respect to his waiver-of-premium claim was excused under the futility doctrine. In explaining its decision, the court stated that it would be “pointless” for the claimant to have appealed the denial of his harder-to-prove claim after he exhausted all his administrative remedies with his easier-to-prove claim.
Sun Life argued that two separate and independent departments reviewed each claim, and that, theoretically, the life insurance group could have granted the waiver-of-premium claim even after the long-term disability claim was denied. However, the manager for the life insurance group testified that she could not recall a single instance where that inconsistency had occurred.
The outcome of Dozier likely would have been different if different plan administrators or insurance companies were reviewing two different claims for benefits.
The futility doctrine is not a model of predictability because it is very fact-specific. Therefore, the prudent course for claimants is to exhaust their administrative remedies, even though it may seem “pointless.” As discussed in a previous blog post, what evidence supports an appeal is critical, so a properly filed appeal is critical. If you have questions about your appeal, consult with a long-term disability lawyer who regularly handles complex ERISA long-term disability cases.