Fessenden v. Reliance Standard Life Insurance Company et al

Filing 21

OPINION AND ORDER taking under advisement 13 MOTION to Determine Standard of Adjudication pending further briefing. Parties directed to file supplemental briefs w/in 30 days as outlined in this Opinion and Order. The parties may then respond to the respective supplemental filing w/in 15 days thereafter. Signed by Judge William C Lee on 6/20/2016. (lns)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
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

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’s employee welfare benefits plan (“the Plan”). Before the Court is Plaintiff,
Donald Fessenden’s (“Plaintiff’s”) “Motion to Determine Standard of Adjudication” filed on
February 1, 2016. Defendants responded on March 1, 2016 to which the Plaintiff replied on March
11, 2016. For the following reasons, the Motion will be taken under advisement pending further
briefing.
FACTUAL BACKGROUND
The underlying facts are largely undisputed. The Plan is a fully funded group insurance
policy issued by Defendant Reliance Standard Life Insurance Company (“Reliance”) to Oracle
America, Inc. According to the terms of the Plan, Reliance also acts as the Plan’s claims review
fiduciary. (Response, Exh. A at p. 13, §7.0). As the claims review fiduciary, the Plan provides
Reliance with “discretionary authority to interpret the Plan and the insurance policy and determine

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eligibility for benefits.” The Plan further provides that decisions by Reliance are “complete, final
and binding on all parties.” (Id.).
Plaintiff was a Software Engineer Manager for Oracle USA until he became disabled and
ceased working on January 2, 2008. Plaintiff applied for and received short term disability benefits
from Reliance. Subsequently, on April 3, 2014, Plaintiff submitted a claim for long term disability
benefits based on a last day of work on January 2, 2008. Upon receipt of the claim and due to the
length of the disability, Reliance requested and received voluminous medical records from 2006
through 2014. On October 27, 2014, Reliance denied Plaintiff’s claim and provided a detailed
letter explaining the reason for the denial. The letter further provides detailed instructions on the
steps necessary for Plaintiff to request review of Reliance’s denial of benefits. Specifically, the
letter states that the Plaintiff may request review of the determination within 180 days by
submitting a written request to Reliance’s Quality Review Unit in Hawthorne, NY.
On April 24, 2015, Plaintiff appealed the denial of his claim. He did so by faxing the
appeal letter to Reliance’s general fax number in Pennsylvania as opposed to mailing the appeal
to the New York address specified in the denial letter. On April 29, 2015, Reliance received
Plaintiff’s submission by regular mail and forwarded it to Reliance’s Quality Review Unit.
In written correspondence dated May 8, 2015, Reliance confirmed receipt of the appeal,
assigned the file to Senior Benefit Analyst Jamil Jackson, and requested the completion of
authorization forms by the Plaintiff. Reliance received completed authorization forms on May 18,
2015 and forwarded the file for an independent medical review on May 21, 2015. Reliance
received the file back from the independent medical review on June 4, 2015. On June 17, 2015,
Reliance notified Plaintiff that it required an additional 45 days to make its determination.

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Thereafter, Reliance rendered its decision on August 27, 2015. In the interim, Plaintiff filed the
instant lawsuit on August 19, 2015.
DISCUSSION
“ERISA was enacted 'to promote the interests of employees and their beneficiaries in
employee benefit plans,' and 'to protect contractually defined benefits.”' Firestone Tire & Rubber
Co. v. Bruch, 489 U.S. 101, 113 (1989) (internal citations omitted). ERISA “permits a person
denied benefits under an employee benefit plan to challenge that denial in federal court.”
Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105, 108 (2008). ERISA's civil-enforcement
provision allows a claimant “to recover benefits due to him under the terms of his plan [and] to
enforce his rights under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B)). Plaintiff’s Complaint
seeks to recover benefits under the Plan. However, in his current motion, the Plaintiff asks the
Court to decide whether it will review Reliance’s benefit determination de novo or under the more
deferential standard for the insurer, the arbitrary and capricious standard. It is to this question that
the Court now turns.
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).
In this case, as set out in the facts, 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
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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.
The starting point in this analysis commences with a review of the applicable regulations.
ERISA regulation 29 C.F.R. §2560.503-1 sets forth certain requirements for the claims procedures
of eligible ERISA plans, including the timing and content of notification of benefit determinations.
With respect to the appeal of an adverse benefit determination, those procedures specify:
(h)…
(1) In general. Every employee benefit plan shall establish and maintain a procedure
by which a claimant shall have a reasonable opportunity to appeal an adverse
benefit determination to an appropriate named fiduciary of the plan, and under
which there will be a full and fair review of the claim and the adverse benefit
determination…
(i) Timing of notification of benefit determination on review—
(1) In general.
(i) Except as provided in paragraphs (i)(1)(ii), (i)(2), and (i)(3) of this
section, the plan administrator shall notify a claimant in accordance with paragraph
(j) of this section of the plan's benefit determination on review within a reasonable
period of time, but not later than 60 days after receipt of the claimant's request for
review by the plan, unless the plan administrator determines that special
circumstances (such as the need to hold a hearing, if the plan's procedures provide
for a hearing) require an extension of time for processing the claim. If the plan
administrator determines that an extension of time for processing is required,
written notice of the extension shall be furnished to the claimant prior to the
termination of the initial 60–day period. In no event shall such extension exceed a
period of 60 days from the end of the initial period. The extension notice shall
indicate the special circumstances requiring an extension of time and the date by
which the plan expects to render the determination on review.
…
(3) Disability claims.
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(i)
Except as provided in paragraph (i)(3)(ii) of this section, claims
involving disability benefits (whether the plan provides for one or two appeals)
shall be governed by paragraph (i)(1) of this section, except that a period of 45
days shall apply instead of 60 days for purposes of that paragraph.
29 C.F.R. §2560.503-1(h)(1), (i)(1) and (i)(3). Thus, 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.
For purposes of calculating the 45 day period, the regulations provide that “the period of
time within which a benefit determination on review is required to be made shall begin at the time
an appeal is filed in accordance with the reasonable procedures of a plan, without regard to whether
all the information necessary to make a benefit determination on review accompanies the filing.”
Id. at §2560.503-1(i)(4). However, the regulations also provide for tolling of the time period in
certain limited situations:
In the event that a period of time is extended as permitted pursuant to paragraph
(i)(1), (i)(2)(iii)(B), or (i)(3) of this section due to a claimant's failure to submit
information necessary to decide a claim, the period for making the benefit
determination on review shall be tolled from the date on which the notification of
the extension is sent to the claimant until the date on which the claimant responds
to the request for additional information.
Id.
Finally, 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:
(l) Failure to establish and follow reasonable claims procedures. In the case of the
failure of a plan to establish or follow claims procedures consistent with the
requirements of this section, a claimant shall be deemed to have exhausted the
administrative remedies available under the plan and shall be entitled to pursue any
available remedies under section 502(a) of the Act on the basis that the plan has
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failed to provide a reasonable claims procedure that would yield a decision on the
merits of the claim.
Id. at §2560.503-1(l).
Here, the Plaintiff asserts that Reliance failed to issue its decision on review of his appeal
within 45 days (or 90 days extended).

Thus, he was excused from exhausting all of his

administrative remedies and was entitled to file suit. Said slightly differently, he asserts that
because the Plan administrator did not meet the timing requirements, the Courts consider the claim
“deemed denied” thereby permitting him to file a civil action in federal court to contest the denial
of benefits. More importantly, Plaintiff, citing to Nichols v. Prudential Ins.Co. of Am., 406 F.3d
98, 109 (2d Cir. 2005)1 argues that once a claim is deemed denied for failure to comply with the
regulatory procedures, the applicable standard of adjudication is de novo regardless of any
discretionary language in the Plan documents. Indeed, according to Nichols, the Courts “may give
deferential review only to actual exercises of discretion.” Id at 107. Thus, as set out in Nichols, the
failure to make a determination within the time frame is the absence of discretion by the Plan and
thus, allows the claimant to utilize the de novo standard of review. See also, Gilbertson v. Allied
Signal, Inc., 328 F.3d 625, 632 (10th Cir.2003) (“Deference to the administrator's expertise is
inapplicable where the administrator has failed to apply his expertise to a particular decision.”);
Gritzer v. CBS, Inc., 275 F.3d 291, 296 (3d Cir.2002) (“Where a trustee fails to act or to exercise
his or her discretion, de novo review is appropriate because the trustee has forfeited the privilege
to apply his or her discretion; it is the trustee's analysis, not his or her right to use discretion or a
mere arbitrary denial, to which a court should defer.” (citing Moench v. Robertson, 62 F.3d 553,
567 (3d Cir.1995))); see also Jebian v. Hewlett–Packard Co. Emp. Benefits Org. Income Prot.

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Plaintiff acknowledges in his brief that the Nichols case interpreted a pre-2000 version of 29 C.F.R. §2560.503-1
which permitted 60 and 120 day deadlines for appeal determination. However, the rationale is equally applicable to
the amended regulations.

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Plan, 349 F.3d 1098, 1104 (9th Cir.2003) (“Decisions made outside the boundaries of conferred
discretion are not exercises of discretion, the substance of the decisions notwithstanding.”).
In response, Reliance expends much effort debating whether it did or did not meet the
timing regulations and specifically whether the notification informing Plaintiff that an additional
45 days was required to process his appeal was timely. For instance, it argues that the appeal
submission facsimile was not “submitted in accordance with the reasonable procedures of a plan”
and thus, the 45 day period did not begin until April 29, 2015 when the claim was forwarded to
the proper department rather than April 24, 2015, the date of the facsimile transmission. See 29
C.F.R. §2560.503-1(i)(4). Next, it argues that additional time is tolled because Reliance requested
medical authorization forms from the Plaintiff and those took 10 days to return to Reliance.
Similarly, it contends that it is entitled to additional tolling for the 14 days the file was under
independent medical review. Thus, in its estimation, Reliance believes it really had 24 days from
April 29, 2015 to send notification that an extension was required or until July 7, 2015.2 Moreover,
it argues that it complied with the regulations when it sent notification of a 45 day extension to the
Plaintiff on June 17, 2015. Thus, it contends that all of Plaintiff’s arguments regarding the
timeliness of the extension request are unfounded and it had until August 21, 2015 to render its
final determination. 3

2

Reliance calculates the date to be July 9, 2015. However, the Court’s calculation is that 69 days (45 days + 24
days tolled as Reliance argues) makes the applicable date July 7, 2015. Regardless, as the body of this Order
demonstrates, under either calculation, Reliance did not issue its final decision in accordance with the regulations’
time frame.
3

Plaintiff counters the tolling arguments, especially with respect to Reliance’s contention that it was entitled to toll
the time period where it was awaiting medical authorization forms. Plaintiff notes that the timing regulation state
that tolling only occurs “due to a claimant’s failure to submit information necessary to decide a claim” and the time
is tolled “from the date on which notification of the extension is sent to the claimant.” 29 C.F.R. 2560.503-1(i)(4).
Plaintiff points out that a letter written to Plaintiff by Reliance wherein Reliance seeks the medical authorization
forms does not indicate that Reliance intends to toll the time frame until it receives the executed medical
authorization forms. Rather, it states “[t]o the extent that additional information is needed, [Reliance] will toll the
relevant time frames for reaching an appeal determination from the time of our request for additional information
until such time as we receive the requested information. Thus, in that letter, Plaintiff asserts that Reliance did not

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This said, Reliance admits in its brief that even with applying the tolling provisions
favorably to it, it did not render a final determination until August 27, 2015, six (6) days after its
own calculation of the deadline. (Response, at 3: “Reliance … rendered its determination a few
days after the complete 90 days expired…”). Thus, the tolling argument is simply a dispute over
whether Reliance was 30 days late or 6, none of which appears to have much consequence in the
dispute before the Court. Late is late.4 Rather, to excuse the late determination of the appeal,
Reliance invokes the doctrine of “substantial compliance” wherein it argues that substantial
compliance with applicable statutory and regulatory guidelines suffices to meet ERISA
requirements. See Schneider v. Sentry Group Long Term Disability Plan, 422 F.3d 621 (7th Cir.
2006).
Responding to this last argument, Plaintiff asserts that the substantial compliance doctrine
is inapplicable to the timing regulations and applies only to the Department of Labor’s more
substantive regulations relating to the contents of communications with claimants. He notes that
the cases cited by Reliance are cases wherein the Court has applied the substantial compliance
doctrine to excuse a Plan’s failure to comply with certain substantive regulations, such as a Plan’s
failure to comply with the content regulations in the issuance of a denial letter. See Id. He further
argues that no Seventh Circuit cases address or apply the substantial compliance doctrine to the
timing regulations.

indicate tolling was necessary due to the Plaintiff’s “failure to submit information necessary to decide the claim”
because it was that very letter in which information it now claims is the reason for tolling was being requested.
However, as noted in the body of the Opinion, even if Reliance’s tolling argument prevails, it was required to issue a
determination by August 21, 2015 (90 days + 24 days tolled from April 29, 2015). It did not.
4

Later in its brief, Reliance seemingly recants its admission that its final determination was not late. Reliance, after
discussion of the substantial compliance argument states that because of substantial compliance, “its final
determination on August 27, 2015 [was] not late.” Response, at 6. This is an incorrect assessment. The
determination, even under the best case scenario for Reliance, was, in fact untimely. The substantial compliance
doctrine merely excuses the untimeliness so long as the administrator made efforts to comply with the applicable
regulations.

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Recently, and after the briefing was concluded on the present motion, the Second Circuit
decided Halo v. Yale Health Plan, Dir. of Benefits & Records Yale Univ., 819 F.3d 42 (2d Cir.
2016). In that case, the Plaintiff contested 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, however, 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 the ERISA regulations,
reversed the district court and held as follows:
Specifically, we hold that, when denying a claim for benefits, a plan's failure to
comply with the Department of Labor's claims-procedure regulation, 29 C.F.R. §
2560.503–1, will result in that claim being reviewed de novo in federal court, unless
the plan has otherwise established procedures in full conformity with the regulation
and can show that its failure to comply with the regulation in the processing of a
particular claim was inadvertent and harmless. We further hold that civil penalties
are not available to a participant or beneficiary for a plan's failure to comply with
the claims-procedure regulation. Finally, we hold that a plan's failure to comply
with the claims-procedure regulation may, in the district court's discretion,
constitute good cause warranting the introduction of additional evidence outside
the administrative record.
Halo, 819 F.3d at 45.

Thus, not only did the Second Circuit seemingly apply the “substantial

compliance” doctrine to the entire claims procedure regulation (not just the substantive portions
of the regulations, as Plaintiff argues here) it also created additional hurdles for a Plan seeking to
invoke the substantial compliance doctrine in that its failure to comply in the processing of a
particular claim must be both “inadvertent and harmless.” Id.
Because this case was decided after briefing on this motion was complete, the parties have
not had the opportunity to address how, if at all in their estimation, this case affects this court’s

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determination of the standard of review in this case. Moreover, the parties have not had the
opportunity to address how Halo’s additional requirements for a Plan to demonstrate substantial
compliance may be applicable to this case.

Accordingly, the Court directs the parties to file

supplemental briefs within thirty (30) days addressing the Halo case and any additional authority
evaluating/applying Halo. The briefs should specifically address, Halo’s interpretation and
application of the substantial compliance doctrine, and its impact on the determinations to be made
here presently. The parties may then respond to the respective supplemental filing within fifteen
(15) days thereafter.5

SO ORDERED. This 20th day of June, 2016

s/ William C. Lee
United States District Court

5

It may be that additional discovery is required for the parties to adequately address whether the Plan here not only
has procedures in place but can also show inadvertence and the absence of harm in this particular instance. The
court shall leave that determination up to the parties to determine and address by way of a separate discovery motion
if they deem it necessary.

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