7th Circuit reverses ruling for insurer over ‘blown deadlines’

The 7th Circuit Court of Appeals has vacated judgment for a plan administrator after concluding insurers will not receive deferential authority if they fail to meet regulatory deadlines under the Employee Retirement Income Security Act of 1974.

While Donald Fessenden was working as a software engineer manager, he began experiencing fatigue and severe, chronic migraines that caused him to stop working. He initially applied for short-term disability benefits through his former employer’s benefits plan issued by Reliance Standard Life Insurance Company.

Although the short-term benefits were granted, by the time those benefits ran out a few months later, Fessenden’s employer fired him. Six years later, Fessenden submitted a claim to Reliance for long‐term disability benefits dating back to his last day of work in 2008. The submission included medical records for the years of 2006 through 2014, as well as statements from multiple doctors, all supporting his diagnosis of chronic fatigue syndrome. But Reliance denied Fessenden’s claim and stated it would notify him of its final decision in 45 days if he sought review of the decision.

When he did, Reliance didn’t keep its word. Instead, it filed a similar final decision more than a week after the mandated, and extended, timeframe had expired, again denying Fessenden’s request. Before the final decision was issued, but after the deadline had passed, however, Fessenden sued Reliance and Oracle USA, Inc. under ERISA, maintaining that he qualified for disability benefits under the plan.

As the plan administrator, Reliance sought an exception for its procedural violation of missing the deadline. It should receive deference, Reliance argued, because it “substantially complied” with the deadline because it was only a little late.

The Northern District Court granted summary judgment to Reliance, rejecting Fessenden’s claims that the timing regulation precluded application of the substantial compliance exception; that Reliance had not substantially complied with the deadline in any event; and that even if it had substantially complied, Reliance’s decision to deny him benefits was arbitrary and capricious.

But the 7th Circuit Court of Appeals vacated the lower court’s determination in a Tuesday opinion, holding that the “substantial compliance” exception does not apply to ERISA’s regulatory deadlines.

“We reject Reliance’s argument because we hold that the ‘substantial compliance’ exception does not apply to blown deadlines. An administrator may be able to ‘substantially comply’ with other procedural requirements, but a deadline is a bright line. Because Reliance violated a hard‐and‐fast obligation, its late decision to deny Fessenden benefits is not entitled to deference,” Circuit Judge Amy Coney Barrett wrote for the panel.

The 7th Circuit noted that giving plan administrators a post-exhaustion grace period creates problems for claimants, either by creating an unfair advantage for administrators or by placing claimant in uncertain waters. 

“We acknowledge that some of our sister circuits have been willing to apply the substantial compliance exception to blown deadlines,” the panel wrote. “These circuits have seen no difference between forgiving tardiness and forgiving violations of other procedural requirements. We disagree.”

The 7th Circuit concluded that excusing late decisions was both foreclosed by ERISA’s 2002 regulations, which added a provision to specifically address “failure to establish and follow reasonable claims procedures,” and incompatible with the doctrine. It also created “significant tension” with the appellate court’s own precedent in Edwards v. Briggs & Stratton Retirement Plan, where it rejected a claimant’s argument that the substantial compliance exception should excuse her untimeliness in missing a deadline.

There, it noted that while it had never applied the doctrine to excuse the mistakes of claimant, as opposed to administrators, its reasonings applied equally to deadlines that bind plan administrators.

“What’s good for the goose is good for the gander,” the panel concluded, vacating the district court’s determination and remanding for proceedings.

“We are thrilled to see this groundbreaking decision from the 7th Circuit effectively killing the ‘substantial compliance’ excuse to blown regulatory deadlines utilized so often by insurance companies,” said Indianapolis attorney Bridget O’Ryan, representing Fessenden. “This decision makes clear that an insurer will be stripped of deferential authority if they fail to meet the ERISA regulatory deadlines.”

The case is Donald Fessenden v. Reliance Standard Life Insurance Company and Oracle USA, Inc., Group Long Term Disability Plan, 18-1346.

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