“Exhaustion” of Appeals Must Be an Explicit Plan Requirement to Defeat Lawsuits

An exhausted administrative remedy heading home after a day’s work.

• ERISA in Practice: “As a general rule, an ERISA claimant must exhaust available administrative remedies before bringing a claim in federal court."

  • But "ERISA seeks to avoid saddling plaintiffs... with the burdens and procedural delays imposed by inartfully drafted plan terms."

  • Therefore “a claimant need not exhaust when the plan does not require it,” with ambiguous terms construed against exhaustion.

• The Facts: Jesse Ayres sued Life Insurance Company of North America (LINA) for long-term disability disability benefits.

  • His dispute involves LINA’s July 2022 decision to approve benefits on behavioral health grounds rather than for post-concussion syndrome. Because his policy only covered mental health conditions for 24 months the decision would result in benefits ending in January 2023.

  • LINA sought judgment on the pleadings for Ayres’s failure to exhaust administrative remedies and failure to cooperate. The administrative record and motion papers are all under seal.

    • The application timeline went:

      • After an initial denial and appeal, LINA approved Ayres for LTD benefits on behavioral health grounds in July 2022.

      • Ayres submitted a disability questionnaire and records authorization to LINA in November 2022. (This was likely for a 24-month eligibility review applying a higher “any occupation” standard and the mental health exclusion.)

      • On December 17 LINA notified Ayres the claim was under consideration and that provider records had been ordered.

      • In January 2023 plaintiff’s counsel asserted the records authorization was revoked and that Ayres was submitting an appeal of the July 2022 approval. Records followed in February and early March “in support of [plaintiff’s] appeal,” each time directing LINA to move forward with an appeal decision.

      • In mid-March 2023 LINA notified Ayres that his "claim is currently open and remains active, therefore appeal rights due [sic] not apply at this time." The court noted that “[w]hether the claim remained open versus whether an appeal had been initiated is central to the failure to cooperate arguments.”

      • After some additional back-and-forth regarding additional records needed Ayres filed suit while LINA continued with internal processing and ultimately issued a “failure to cooperate” denial of benefits in June 2023.

  • From LINA’s point of view it only considered Ayres’s post-24 month eligibility in the first instance and Ayres had not exhausted his appeal rights for its June 2023 denial.

  • From Ayres’s point of view he had appealed a June 2022 decision in January 2023 and the appeal was “deemed denied” by the end of March 2023.

• The Holding: The plan language doesn’t hold up.

  • “Defendant does not identify any language in the LTD Plan requiring Plaintiff to exhaust administrative remedies prior to filing a lawsuit.”

  • The court agreed that an earlier district court case, Greiff v. LINA, had analyzed “language identical to the language contained in the LTD plan in this case.”

    • There, plan language stated that denial of claims letters would include “[a] statement regarding the right to appeal the decision, and an explanation of the appeal procedure, including a statement of the right to bring a civil action under Section 502(a) of ERISA if the appeal is denied.”

    • Grieff held that that language did not require exhaustion, commenting that it did “not alert an average claimant that exhaustion of administrative remedies is a mandatory prerequisite to filing a civil action” and that “telling a claimant that ‘she has a right to an appeal’ is not the same as telling a claimant she must appeal or she loses her right to challenge the decision in court."

  • Relying on Grieff, the Ayres court held that the plan contained no requirement to exhaust administrative remedies prior to filing suit.

  • It also ruled LINA’s “failure to exhaust” arguments are subject to disputes of fact and denied judgment on the pleadings on that issue.

• The Takeaway:

  • Plan documents are the sun, moon, and stars of ERISA law. The “default rules” depend on plan documents actually containing the customary terms and conditions that undergird those decisions.

  • “Failure to exhaust” is a judicial requirement, intended to preserve court resources and encourage administrative resolution of claims. Courts want to dismiss premature cases. But here the plan documents gave the court nothing to work with.