We are occasionally reminded that the claims and appeals procedures carefully spelled out in ERISA plans have real meaning. Although the regulatory deadlines within which plan fiduciaries must render decisions on benefit claims and appeals may appear arbitrary – and although many plan administrators treat them as mere “guidelines” – the failure to abide by those deadlines can have disastrous consequences in court. A recent decision by the 10th U.S. Circuit Court of Appeals illustrates that those deadlines do have teeth. (Rasenack v. AIG Life Insurance Co.)
Mr. Rasenack sued the administrator of his employer’s disability plan under ERISA, challenging the administrator’s denial of his claim for benefits. The claim hinged on an interpretation of a disputed term in the disability plan. The trial court ruled in favor of the administrator, based on an application of the “arbitrary and capricious” standard of review. The 10th Circuit reversed.
The administrator had failed to timely process Mr. Rasenack’s claim and administrative appeal, finally issuing a decision on the appeal only after Mr. Rasenack had filed suit. Although the terms of the plan vested the administrator with discretionary authority, which generally entitles an administrator to a deferential standard of judicial review under the familiar rule of Firestone v. Bruch, the 10th Circuit held that an administrator loses this entitlement to deferential review when its delay in deciding a claim results in the claim being “deemed denied.” The court concluded that “not only must the administrator be given discretion by the plan, but the administrator’s decision in a given case must be a valid exercise of that discretion.” In this instance, because the administrator failed to render a decision on the administrative appeal, the administrator’s interpretation of the disputed term was not entitled to deference.
Plan administrators would be well advised to consider carefully the lesson imparted by the 10th Circuit in this case, and to treat claims and appeals deadlines as more than mere guidelines.