One of the unique aspects of litigation under the Employee Retirement Income Security Act is that most courts limit the scope of their review to the claim record compiled during the course of the claim and prelitigation appeals and will not address new evidence that was not previously considered.
Such limitations often benefit plan administrators but limiting the scope of court review also protects claimants from having to address new rationales that insurers might raise in litigation.
A Nov. 1 ruling from the U.S. District Court for the Western District of Louisiana, Rushing v. Sun Life Assurance Co. of Canada,[1] illustrates how limited court review can prevent an insurer from raising a new rationale for denying benefits that had not previously been asserted.
After Sun Life denied the plaintiff’s claim and suit was filed, Sun Life sought a remand from the court to raise a new basis for the benefit denial. The plaintiff objected, and the court sustained the objection.
The case involved the death of the plaintiff’s husband in a head-on auto collision. A post-mortem toxicology evaluation tested positive for both an over-the-counter cough suppressant and an antihistamine. Both drugs have side effects that include sedation, confusion and even hallucinations. Sun Life sought to make use of the toxicology report even though it had not been addressed previously.
Sun Life initially denied the claim on the basis that the decedent’s death was not “a sudden and accidental event that results independently of other causes and is independent of any illness, disease, or other bodily malfunction.” Sun Life also cited a criminal act exclusion in the policy as a second ground for denying benefits.
After the plaintiff challenged the denial, Sun Life contacted the Louisiana State Police to inquire whether the decedent could have been charged with a crime had he survived. The state police responded that the decedent would not have been charged with vehicular homicide or negligent homicide, but that he could have been cited for a traffic code violation such as careless operation of a motor vehicle in relation to his crossing the center line of the road. The police further notified Sun Life that there were no illegal substances found in the post-mortem toxicology report.
Sun Life nonetheless denied the beneficiary’s prelitigation appeal. Although the insurer acknowledged the criminal act exclusion was inapplicable, the insurer reiterated its position that no accident occurred since the decedent crossed the center line of the road; thus, it was foreseeable that death or bodily injury could result.
After suit was filed, though, Sun Life’s counsel contacted the plaintiff’s lawyer and asserted that the drugs noted in the toxicology report would have affected the decedent’s driving, which furnished an additional reason for the denial. The plaintiff objected to the new issue being raised following exhaustion of presuit appeals.
Sun Life nonetheless requested the court to remand the case to allow Sun Life the opportunity to engage in a further review to address the toxicology report. The cases Sun Life cited in support of its request, though, were cases where the claimant sought a remand due to an inadequate review.
The court rejected Sun Life’s request. The court determined that the insurer’s newly asserted reason for the denial — the toxicology report — was not a valid ground to allow Sun Life another proverbial bite at the apple. As the court observed, Sun Life had possession of the report from the outset of the claim and had “more than ample opportunity to explore the effect of the substances before the case arrived in court.”
Citing precedent from the U.S. Court of Appeals for the Fifth Circuit, Vega v. National Life Insurance Services Inc.,[2] the court ruled that a remand would be inappropriate to allow the administrator to raise a new basis for its denial. Vega found that “the claimant only has an opportunity to make his record before he files suit in federal court [and] it would be unfair to allow the administrator greater opportunity at making a record than the claimant enjoys.”
Hence, the court held, “[I]t is not appropriate for the plan or insurer to wait until a case is in federal court and then seek remand to build a new basis for denial that it reasonably could have developed during the administrative process.” The court therefore concluded that the case would be decided on the record previously made and on the grounds asserted as the basis for the denial.
The ERISA statute requires that employee benefit plans must “provide adequate notice in writing to any participant or beneficiary whose claim has been denied, setting forth the specific reasons for such denial, written in an a manner calculated to be understood by the participant.”[3]
The ERISA benefit claim regulations contain a similar requirement.[4] The reason behind such a requirement is evident. Since most courts mandate claim exhaustion as a precondition to filing suit, claimants have a right to know the basis for the claim denial in order to appeal. Consequently, courts disallow plan administrators from bringing up new bases for denying benefits once the claim and appeal process has concluded.
Indeed, as the U.S. Court of Appeals for the Eighth Circuit long ago observed in Short v. Central States a “post hoc attempt to furnish a rationale for a denial of … benefits in order to avoid reversal on appeal, and thus meaningful review is not acceptable.”[5] In that regard, ERISA rules are no different than a principal of insurance law known as “mend the hold,” which precludes an insurance company from changing its litigating position once it has articulated a defense.[6]
A prime example of that principle in operation in an ERISA case is the U.S. Court of Appeals for the Second Circuit’s 2002 ruling in Lauder v. UNUM Life Insurance Co.[7] In that ruling, the court held that the insurer’s failed reliance on a coverage defense precluded a subsequent challenge to the merits of the denial.
Although Sun Life tried to avoid the rule against stating a new defense for the first time in litigation by seeking a remand, the court saw through that argument.
While not articulated, the court could have turned to an out-of-circuit decision that relied on the Fifth Circuit’s Vega ruling that was cited in the court’s opinion.
In its 2004 decision in Dabertin v. HCR Manor Care Inc.,[8] the U.S. Court of Appeals for the Seventh Circuit remarked, “It would be a terribly unfair and inefficient use of judicial resources to continue remanding a case to the Committee to dig up new evidence until it found just the right support for its decision to deny an employee her benefits.”
In any event, though, the defense the insurance company wanted to assert would likely have been unsuccessful. Accidental death resulting from unintended drug side effects is usually not a bar to accidental death insurance coverage unless there is an explicit policy exclusion.[9]
The Rushing case stands for an important principal. Courts are wary of insurers that try out a defense to a benefit claim; and when that defense fails, propose a new defense. Claimants have every right to expect that when they challenge a denial, they do not have to hit a moving target and be required to overcome serial defenses.
Thus, the court’s ruling reinforced claimants’ rights to know all the reasons for a claim denial and also know that when they go to court, they will not be forced to jump through additional hoops in order to obtain benefits.
Mark D. DeBofsky is a shareholder at DeBofsky Law.
This article was first published by Law 360 on November 9, 2022
[1] Rushing v. Sun Life Assur. Co. of Canada, 2022 U.S. Dist. LEXIS 199034, 2022 WL 16579789 (W.D. La. November 1, 2022).
[2] Vega v. Nat’l Life Ins. Servs., Inc., 188 F.3d 287, 302 n. 13 (5th Cir. 1999).
[3] 29 U.S.C. § 1133.
[4] 29 C.F.R. § 2560.503-1(g)(1).
[5] Short v. Central States, S.E.&S.W. Areas Pension Fund,729 F.2d 567, 575 (8th Cir. 1984).
[6] See, e.g., Harbor Ins. Co. v. Cont’l Bank Corp., 922 F.2d 357 (7th Cir. 1990).
[7] Lauder v. UNUM Life Insur.Co., 284 F.3d 375 (2d Cir. 2002).
[8] Dabertin v. HCR Manor Care, Inc., 373 F.3d 822, 832 (7th Cir. 2004).
[9] See, Santaella v. Metro. Life Ins. Co., 123 F.3d 456 (7th Cir. 1997) (accidental drug overdose).
