Tennessee Disability and Life Insurance Blog
In a post from a little over a year ago, we discussed that, if you have an ERISA long-term disability claim, you generally 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 must file an administrative appeal. In most cases, if you do not file an appeal and exhaust your administrative remedies, you will be barred from bringing a lawsuit in court.
In our prior post, we discussed one exception to the exhaustion requirement. If filing a disability claim 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). So, even if your policy requires that you exhaust your administrative remedies before filing suit, a court will not dismiss your lawsuit if you can show that your appeal would have been unsuccessful based on how your insurer handled your claim.
There is another exception to the exhaustion requirementꟷif your policy simply does not require you to file an administrative appeal before filing suit. We came across this situation recently with one of our disability clients who decided not to appeal her denial of long-term disability benefits. The client, let’s call her Jen, was discouraged after her disability case manager told her it would be a “waste of time” to appeal her denial of long-term disability benefits since she had already been turned down for short-term disability benefits. After about a year had passed, Jen decided to file a lawsuit challenging the insurer’s denial of her claim.
After she brought her lawsuit, the insurer filed a motion for summary judgment asking the court to throw out her case because she failed to exhaust her administrative remedies. In our response, we argued that Jen’s lawsuit was allowed under the “futility doctrine” based on the negative comments of her disability case manager.
Additionally, we argued that Jen’s policy did not require her to exhaust her administrative remedies by appealing the denial of long-term disability benefits. The basis for this was the language in Jen’s policy which provided that a claimant could not initiate any legal action:
(1) Until 60 days after Proof of claim has been given; or
(2) More than three years after the time Proof of claim is required.
Because Jen’s lawsuit complied with the above terms and because she had no obligation under the policy to file an appeal, we argued the insurer’s summary judgment motion should be denied. Although the Sixth Circuit does require that claimants exhaust their administrative remedies before bringing suit, we argued that rule shouldn’t apply if the policy didn’t actually include an exhaustion requirement.
The court agreed. In recommending that the insurer’s motion for summary judgment should be denied, the magistrate judge cited, among other reasons, the policy’s failure to include a requirement that claimants file an administrative appeal before filing a lawsuit.In our response to the insurer’s motion for summary judgment, we cited a helpful case for disability claimants. In Wallace v. Beaumont Healthcare Employee Welfare Benefit Plan, (E.D. Mich. Jan. 18, 2017), the co-defendant argued that the plaintiff’s lawsuit challenging her denial of long-term disability benefits should be dismissed because “she failed to exhaust her administrative remedies.” The court disagreed with this argument on the basis that the plaintiff’s policy contained no term requiring a statement requiring a claimant to file an appeal or otherwise exhaust administrative remedies . As the Wallace court noted:
“The exhaustion requirement must be written in a manner calculated to be understood by the average plan participant, and must be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan.”
The Wallace opinion is not an outlier. Courts in the Second, Ninth and Eleventh Circuits have held that plaintiffs are excused from exhausting their administrative remedies before bringing suit if the operative policy does not, unambiguously, contain such a requirement.
In practice, most of the disability policies that we have seen require that claimants file an administrative appeal before filing suit. Even if your policy does not include an “exhaustion” requirement, it may still make sense to appeal a denial of disability benefits. An appeal allows you to include additional medical records in the administrative record which could be valuable in a subsequent lawsuit challenging the insurer’s decision. If you have failed to appeal your insurer’s denial of your long-term disability claim within the time frame set out in your policy, you should not assume that you have no further recourse.
If you have questions about your appeal, consult with a long-term disability lawyer who has handled complex ERISA cases.