Fessenden v. Reliance Standard Life Insurance Company et al

Filing 29

OPINION AND ORDER: DENYING 13 MOTION De Novo Standard of Adjudication by Plaintiff Donald Fessenden to the extent it seeks review under the de novo standard. GRANTING 28 MOTION FOR ORDER DEEMING RESPONSE BRIEF TO PLAINTIFFS SUPPLEMENTAL BRIEF ON THE STANDARD OF ADJUDICATION TIMELY FILED OR, ALTERNATIVELY, FOR AN EXTENSION OF TIME re 27 Response/Reply by Defendants Oracle USA Inc Group Long Term Disability Plan, Reliance Standard Life Insurance Company. Signed by Judge William C Lee on 9/26/2016. (lhc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
DONALD FESSENDEN,

)
)

Plaintiff,
)
) CAUSE NO: 3:15-CV-370
v.
)
)
RELIANCE STANDARD LIFE INSURANCE )
COMPANY and ORACLE USA, INC.,
)
GROUP LONG TERM DISABILITY PLAN )
)

Defendants.
)
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 be

1

Oracle America, Inc. is the successor to Oracle USA, Inc., Group Long Term Disability Plan.
Also pending is the Defendant’s Motion for Order Deeming Response Brief Timely Filed or Alternatively,
Motion for Extension of Time. [DE 28]. That motion is GRANTED. That said, the apple doesn’t fall far
from the tree. The present motion to determine the standard of adjudication exists, in part, due to the
untimeliness of the Defendant in responding to the Plaintiff’s appeal of the denial of benefits. Ironically,
even after Defendant requested and was granted an extension of time to file the additional briefing [DE 25],
counsel was STILL untimely thereby resulting in yet another Motion to the court.

2

1

DENIED 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 initial

2

denial.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

3

The parties dispute whether the untimely decision was late by a few days or a few weeks but, regardless
for current purposes “late is late” as this Court has previously noted. [DE 21, p. 8].
4
Reliance also made an inconsistent argument that its appeals determination was timely. However, in its
July 20, 2016 Order, the Court rejected that argument noting that “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…Thus, the tolling argument is simply a dispute

3

“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 Plaintiff

over whether Reliance was 30 days late or 6, none of which appears to have much consequence in the
dispute before the Court.” [DE 21 at 8].
5

In 2000, § 2560.503–1 was amended, and the “deemed denied” provision was replaced with the
following paragraph:

4

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 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…

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 failed to provide a reasonable
claims procedure that would yield a decision on the merits of
the claim.
29 C.F.R. § 2560.503–1(l) (emphasis added). The preamble to the regulation explains that the
“Department's intentions in including this provision in the proposal were to clarify that the procedural
minimums of the regulation are essential to procedural fairness and that a decision made in the absence of
the mandated procedural protections should not be entitled to any judicial deference.” 65 Fed.Reg. at
70,255 (emphasis added).

5

…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 should not also tolerate such minor deviations…
…To prevent the exception from swallowing the rule, however, such deviations
should not be tolerated lightly. Accordingly, we hold that, when denying a claim
for benefits, a plan's failure to comply with the Department of Labor's claimsprocedure 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 claims-procedure regulation in the processing of a particular claim
was inadvertent and harmless. Moreover, the plan ‘bears the burden of proof on
6

this issue since the party claiming deferential review should prove the predicate that
justifies it.’ Sharkey v. Ultramar Energy Ltd., 70 F.3d 226, 230 (2d Cir.1995); see
also Nichols, 406 F.3d at 108 (noting the “administrator had the burden of proving
discretion”).
Halo, 819 F.3d at 58.

Thus, the Second Circuit, while rejecting the “substantial compliance”

doctrine created additional hurdles for a Plan asserting that it was entitled to a deferential standard
despite its failure to comply with procedural regulations. In such circumstances, the plan must
demonstrate that it has (1) procedures in full conformity with the claims-procedure regulations and
(2) its failure to comply in the processing of a particular claim was both “inadvertent and
harmless.” Id. 6

6

In 2015, pursuant to provisions in the Affordable Care Act, the Department of Labor published proposed
regulations to section 503, at 29 CFR 2560.503-1, amending further the procedural rules, specifically as
they relate to disability claims. These proposed regulations appear more in line with the Second Circuit
approach in Halo.
The proposal would strengthen the deemed exhaustion provision in the Section 503
Regulation in three important respects. First, the more stringent standards in the 2719 Final
Rule would replace existing standards for disability benefit claims in cases where the plan
fails to adhere to all the requirements of the Section 503 Regulation. Thus, in this respect,
the proposal would adopt the 2719 Final Rule's approach, including an exception in
paragraph (l)(2)(ii) for errors that are minor and meet certain other specified conditions.
Second, in those situations when the minor errors exception does not apply, the proposal
clarifies that the reviewing tribunal should not give special deference to the plan's decision,
but rather should review the dispute de novo. Third, protection would be given to claimants
whose attempts to pursue remedies in court under section 502(a) of ERISA based on
deemed exhaustion are rejected by a reviewing tribunal.
The minor errors exception would operate as follows. The proposal would provide that any
violation of the procedural rules in the Section 503 Regulation would permit a claimant to
seek immediate court action, unless the violation was: (i) de minimis; (ii) non-prejudicial;
(iii) attributable to good cause or matters beyond the plan's control; (iv) in the context of
an ongoing good-faith exchange of information; and (v) not reflective of a pattern or
practice of non-compliance. In addition, the claimant would be entitled upon request, to an
explanation of the plan's basis for asserting that it meets this standard, so that claimant
could make an informed judgment about whether to seek immediate review.
Claims Procedure for Plans Providing Disability Benefits, 80 FR 72014-01.

7

Given the seeming acceptance of the substantial compliance doctrine by the Seventh
Circuit decisions, at least one of which was decided prior to the promulgation of the 2000
regulations,7 vis-a-vis the recent decision in Halo flatly rejecting that doctrine, the Court sought
additional briefing from the parties.
It is no surprise that the Plaintiff implores the Court to apply the analysis in Halo and
asserts that he has evidence demonstrating that Reliance neither established procedures or followed
any and, as it pertains to this particular claim, the failure to comply was not inadvertent. For
instance, Plaintiff cites the claims file and points to notations in the file where Reliance pinpointed
the 45 day and 90 day dates that various communications under the regulations are required.
Plaintiff goes on to note that despite the written file notations, Reliance failed to timely issue a 45
day letter and ultimately failed to issue a timely appeals determination. Finally, Plaintiff cites two
other cases in other courts where, he represents, Reliance’s failure to meet the regulatory deadlines
are an issue. Thus, he suggests there exists an institutional pattern of non-compliance.
Where Plaintiff’s well runs dry, however, is in his failure to make any argument or assertion
whatsoever that Reliance’s non-compliance caused him harm, so as to qualify under the Halo
standards. Indeed, even if the Court applied the Halo analysis there is simply no evidence to
support a finding that Reliance’s non-compliance harmed the Plaintiff. Rather, Plaintiff had
already filed suit prior to Reliance issuing its decision on his appeal, thereby asserting his further
appeal rights.
That said, it is likewise no surprise that Reliance asserts Halo is inapplicable and entreats
the Court to follow the “substantial compliance” doctrine as that doctrine has been espoused in

7

Halpin was decided prior to the 2000 DOL Regulations. However, that case has continued to be followed
in this Circuit by panels post-2000 regulations. See Edwards, 639 F.3d at 362 (7th Cir.2011); Hackett v.
Xerox Corp. Long-Term Disability Income Plan, 315 F.3d 771, 775 (7th Cir. 2003).

8

prior Seventh Circuit cases such as Halpin. With respect to the applicability of Halo, Reliance
makes the befuddling and completely unsupported argument that so long as it complies with the
timeframes for the initial determination of benefits, any subsequent failure to abide by the
regulatory framework is no harm, no foul. Setting that argument aside,8 Reliance further argues
that the delay, whether it be 6 or 30 days was occasioned by its use of an independent reviewer
and also by the fact that it had to await the release of medical records from the Plaintiff. These
types of delays, Reliance asserts, are acceptable so long as they are not excessive or unreasonable.
See Lundsten, 2014 WL 2440716, at *5 (““Aetna's decision was delayed pending the receipt of
additional information, either from Lundsten's family, Lundsten's doctors, or from Lundsten
herself. Further delay was also caused by Aetna's use of independent peer reviewers. None of these
delays were excessive or unreasonable.”); see also, e.g., Seger, 2005 WL 2249905, at *12 (given
ReliaStar's repeated efforts to obtain the independent medical review, and the fact that it advised
Seger of the cause underlying the delay of her appeal, Seger was not deprived of a full and fair
review of her claim).
In this case, while the reasoned approach in Halo appears consistent with the Department
of Labor’s regulations, the Court is reluctant to follow out of circuit precedent when, to date, the
Seventh Circuit has weighed in on this issue and applied the substantial compliance doctrine to
excuse an insurer’s non-compliance with the regulatory framework where the non-compliance is
within reason and the insured has a full and fair review of the claim. See Halpin, 962 F.2d at 690.
As noted above, Plaintiff has not asserted what harm has befallen him from the failure to comply.

8

It seems disingenuous for Reliance to argue that an insurer can pick and choose which Department of
Labor regulations it should comply with and which ones are merely suggestive. The Department of Labor’s
preamble explains that the regulations are procedural minimums to ensure fairness to the procedures for the
insured. While this Court ultimately concludes here that Reliance is excused for its non-compliance, that is
not a Court endorsement of its conduct here in failing to comply with the procedural regulations.

9

While Reliance certainly could have performed its obligations better, more timely, and with more
communication to the Plaintiff, in the end, there appears no question that the goal of the
regulations, i.e., to make certain an insured receives a full and fair review of his claim, was
achieved here. This is not a case where the administrator ignored the Plaintiff’s appeal altogether.
Rather, Reliance reviewed six years of medical records;9 it delivered the file to an independent
medical reviewer for assessment; and it issued a lengthy denial letter explaining the reasons for its
decision. Thus, Plaintiff was aware of the initial denial, the reasons for the denial and, albeit
slightly belatedly, received a decision on the appeal of the denial of his initial claim. That is all
that is required for the insurer to retain the benefit of deferential review, especially absent any
evidence or argument as to prejudice. Accordingly, the Court concludes that Reliance substantially
complied with the regulatory framework and the Plaintiff’s claim will be reviewed under the
arbitrary and capricious standard.
CONCLUSION
Based on the foregoing, the Plaintiff’s Motion to Determine Standard of Adjudication [DE
13] is DENIED to the extent it seeks review under the de novo standard. The Defendant’s Motion
for Order Deeming Response Brief Timely Filed or Alternatively, Motion for Extension of Time.
[DE 28] is GRANTED.
Entered: This 26th day of September, 2016

s/ William C. Lee
United States District Court

9

Plaintiff filed the long term disability claim in April, 2014 claiming a last day worked of January 2, 2008.

10