There is no provision in the Employee Retirement Income Security Act of 1974 mandating that claimants must exhaust internal appeals as a precondition to filing a lawsuit to challenge a claim denial. Nonetheless, most courts have required claimants to exhaust prelitigation appeals before their cases may be heard in court.
However, a recent ruling from the U.S. Court of Appeals for the Eighth Circuit in the case of Yates v. Symetra Life Insurance Co.[1] adds to a growing chorus of appellate opinions that have begun to rightly question court-created ERISA procedural rules such as the administrative exhaustion requirement.
The case was brought by Teri M. Yates to recover accidental death insurance benefits after her husband died of a heroin overdose. Although the insurer denied the claim on the ground that the insured’s death was the result of an intentional self-inflicted injury, U.S. District Judge Ronnie L. White of the U.S. District Court for the Eastern District of Missouri granted summary judgment to the plaintiff.
That ruling came after an initial court ruling upheld the claim denial on the ground the plaintiff filed suit without exhausting internal appeal procedures. On reconsideration, though, the district court reversed itself and found exhaustion was not required. The court also determined the basis of the denial was erroneous. The court of appeals affirmed the judgment for the plaintiff.
The Eighth Circuit acknowledged that exhaustion of ERISA benefit claims is typically required based on an interpretation of Title 29 of the U.S. Code, Section 1133, which states that when a claim has been denied, the claimant is entitled to a “full and fair review … of the decision denying the claim.”[2] However, the court held that exhaustion cannot be made mandatory unless it is required by the terms of the plan.
Although the claim denial letter sent to Yates included a description of an internal review process, the plan document did not contain any mention of internal appeals. Hence, the Eighth Circuit determined the plaintiff was excused from any obligation to appeal the denial to the insurer before filing suit.
The court reviewed its prior precedents and found that in earlier cases where exhaustion was held to be required, it was based on plan terms. The court of appeals also found support for its decision in a recent U.S. Court of Appeals for the Sixth Circuit ruling, Wallace v. Oakwood Healthcare Inc.,[3] which had reached the same conclusion.[4]
As further support, the court cited several cases that emphasized that the written terms of the benefit plan constitute the source of claimants’ “rights and obligations.” Consequently, the Eighth Circuit concluded that if Yates had been required to exhaust procedures that were not contained in the benefit plan, it would “render her reliance on those documents largely meaningless in this context.”
Finally, the court turned to the ERISA claim regulations,[5] which impose an obligation on benefit plans to “establish and maintain a procedure” for appeals of benefit denials.[6] Since the plan lacked any such procedures, Symetra was found noncompliant with the regulations.
Thus, although Symetra invited Yates to appeal its decision and advised her of the procedures for submitting an appeal, the Eighth Circuit deemed that communication inadequate in the absence of plan language imposing an appeal obligation on the plaintiff.
As to the merits, the court of appeals upheld the lower court’s finding that Yates’ death did not fall under a policy exclusion for self-inflicted injuries. The court relied on a prior accidental death insurance decision involving drunk driving in which the same defense was raised,[7] and reiterated its earlier conclusion that the exclusion would only be applicable if the insured intended to injure himself. Since there was no evidence that Yates’ husband intentionally overdosed, the court ruled the exclusion inapplicable.
Returning to the exhaustion issue, as the concurring opinion in Wallace pointed out, there is a problem with courts imposing obligations on benefit plan participants that lack statutory support. The Yates ruling is therefore extremely significant in its holding that joins Wallace in rejecting other cases that elevated administrative exhaustion into dogma. The ERISA statute is complex enough without court created procedural obligations.
Since ERISA grants benefit claimants the right to bring a civil action,[8] courts have no authority to invent new civil procedures since nearly all federal civil actions with limited exceptions are governed by the Federal Rules of Civil Procedure.[9]
There is no provision in those rules providing for administrative exhaustion. Nor does the ERISA statute provide a basis for treating ERISA cases in the same manner as administrative law proceedings.
Courts have impliedly assumed that the manner in which they review Social Security disability benefit claims apply to ERISA cases, but that view is mistaken.
The Social Security Act contains explicit provisions for judicial review[10] that appear to be the source of many of the aberrant procedures and terms used in ERISA cases, although the ERISA statute unfortunately uses the term “administrator,”[11] which may be the source of potential confusion.
Unlike ERISA plans, though, which are privately administered, the Social Security Administration is a federal agency, and benefit claims are adjudicated administratively by neutral independent fact-finders, not claim adjusters in the employ of insurance companies.
Sentences 4 and 6 of Title 42 of the U.S. Code, Section 405(g), explicitly provide for remands of claims, which the ERISA statute does not; and the same statutory section also imposes a requirement that courts base their determinations on a review of an administrative record that includes a transcript of a hearing before an administrative law judge where testimony is taken under oath and claimants have the right to cross-examine adverse witnesses.
No comparable provisions are found in the ERISA statute. Yet courts routinely remand ERISA cases and decide ERISA cases based on record reviews rather than by holding a plenary hearing, which is required by the Federal Rules of Civil Procedure.
By not falling into the trap of looking at the Yates case as an administrative law claim, the Eighth Circuit has added yet another voice to the growing effort to restore regular civil procedure to ERISA cases. Other courts should take note and continue to question and ultimately bring an end to procedures that have no place in ERISA litigation.
Mark DeBofsky is a shareholder at DeBofsky Law Ltd.
This article was first published by Law 360 on March 1, 2023.
[1] Yates v. Symetral Life Ins. Co., 2023 U.S. App. LEXIs 4243, 2023 WL 2174840 (8th Cir. February 23, 2023).
[2] 29 U.S.C. § 1133(2).
[3] Wallace v. Oakwood Healthcare, Inc., 954 F.3d 879 (6th Cir. 2020).
[4] See, DeBofsky, “6th Circ. Ruling Offers Fresh Look at ERISA Exhaustion,” Law 360 (April 24, 2020); available at https://www.law360.com/articles/1264985.
[5] 29 C.F.R. § 2560.503-1.
[6] 29 C.F.R. § 2560.503-1(h)(1).
[7] King v. Hartford Life & Accident Insurance Co., 414 F.3d 994 (8th Cir. 2005).
[8] 29 U.S.C. § 1132(a)(1).
[9] Federal Rules of Civil Procedure 1 and 2.
[10] 42 U.S.C. § 405(g).
[11] 29 U.S.C. § 1002(16).
