January 21, 2021

Volume XI, Number 21

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Employers, Check Your Plan Documents for Claims Procedures

Employers and employee benefit plans have long benefited from the judicially created “exhaustion” doctrine with respect to plans that are subject to the Employee Retirement Income Security Act (ERISA). This doctrine requires that claimants for plan benefits must exhaust all administrative remedies (i.e., the plan’s claims procedures) before they can pursue a claim for benefits in the courts. A claimant’s failure to exhaust his or her administrative remedies can result in a dismissal of a claimant’s case or final denial of a benefit claim.

There are a few exceptions to the exhaustion doctrine. One can apply when a plan fails to establish and maintain a reasonable claims procedure as required by ERISA. If so, a claimant is deemed to have exhausted all administrative remedies even if he or she does not fully utilize a plan’s claims procedures. A recent case from the Sixth Circuit Court of Appeals, Wallace v. Oakwood Healthcare, Inc. (March 31, 2020) (Oakwood), sheds some light on what it means to establish and maintain a “reasonable claims procedure.” Although a court decision from the Sixth Circuit does not bind employers or employee benefit plans in the Seventh Circuit (which includes Illinois, Indiana and Wisconsin), decisions in one federal circuit court can persuade other circuits.

At the heart of Oakwood was whether an insurance company could avail itself of the exhaustion doctrine for a claimant’s failure to follow the claims procedure for a disability insurance policy. The Court found that the claimant was deemed to have exhausted all administrative remedies because the insurer’s claims procedures were not included in the underlying plan document. The Court did not address whether including claims procedures in a summary plan description would be enough for an employee benefit plan to take advantage of the exhaustion doctrine because the insurer did not produce a summary plan description for the record. However, the Court implied that claims procedures should be included in both the plan document and summary plan description given the Court’s holding “that for a plan fiduciary to avail itself of this Court’s exhaustion requirement, its underlying plan document must—at minimum—detail its required internal appeal procedures.” The insurance company argued that the provision of the claims procedures with the insurer’s notice of benefit denial was enough to allow a defense based on the exhaustion doctrine. However, the Court rejected that argument.

EMPLOYER CONSIDERATIONS

Considering Oakwood, employers should review their plan documents and summary plan descriptions and consider whether to include the claims procedures in (or with) both documents. Additionally, employers should consider adding a plan provision that requires a claimant to exhaust the administrative remedies. In that case, the plan may have an additional line of defense to impose an exhaustion requirement even if courts abolish the exhaustion doctrine as it currently exists.

 

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Copyright © 2020 Godfrey & Kahn S.C.National Law Review, Volume X, Number 336
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About this Author

Daniel Barnes Employment & Tax Attorney
Associate

Daniel Barnes is an associate in the Employee Benefits and Tax Practice Groups in the Milwaukee office.

Daniel focuses his practice on employee benefits and executive compensation. He has extensive experience with compliance issues related to the Affordable Care Act (ACA), including assisting employers with meeting the requirements of the employer mandate, navigating the ACA’s information reporting requirements, and designing and implementing self-funded health plans in a manner to comply with the ACA’s market reform provisions. Daniel also has experience assisting employers and...

414-287-9322
Todd Cleary Employee Benefits Attorney
Shareholder

Todd Cleary is a shareholder in the firm’s Employee Benefits Practice Group. Todd works extensively with retirement plans, such as ESOPs, pension, profit sharing, 401(k), 403(b), 457, cash balance, SIMPLE and SEP plans. Todd’s experience with welfare plans includes the design and compliance of medical plans (including issues related to ERISA, COBRA and HIPAA), wellness programs, cafeteria plans, disability plans (short-term and long-term), and group term life insurance plans. Todd has also worked with nonqualified deferred compensation plans, multiple employer welfare arrangements (MEWAs...

608-284-2613
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