:: Sixth Circuit Applies Futility Exception To Enforce Consistency In Claims Review
Courts and applicants may fairly assume that a company will treat benefits claims consistently and coherently; they should not be required to insist on exhaustion on the assumption that the company may have a bad day. Otherwise, the futility exception would never apply-as the specter of a mistake or inconsistent application of the plan’s terms would always hold out the possibility of relief . . . Because it indeed would have been futile for Dozier to ask the insurance company to find that he could not perform “any occupation†for which he was qualified (the eligibility requirement for obtaining a waiver of life insurance premiums) after the company had already concluded that he could perform his “own occupation†(making him ineligible for long-term-disability benefits), we reverse. Dozier v. Sun Life Assur. Co. of Canada, 2006 WL 3040129 (C.A.6 (Ky.), (October 27, 2006)
In Dozier v. Sun Life Assur. Co. of Canada, the Sixth Circuit precluded a life and disability carrier from requiring exhaustion of administrative remedies when the grounds for one claim denial was substantially similar (and in fact, more stringent) than the claim for the second benefit.
The plaintiff, Dozier, participated in long-term disability and life insurance policies underwritten by Sun Life Assurance Company of Canada. To qualify for long-term-disability benefits the policy, an claimant had to be “unable to perform the Material and Substantial Duties of his Own Occupation.â€
A similar condition applied in qualifying for a waiver of premium benefit under the life insurance policy. To qualify for the waiver of premium benefit the life insurance policy required that the employee be “unable to perform the material and substantial duties of any occupation for which he is or becomes reasonably qualified for by education, training or experience.â€
After a back injury in 2001 and a subsequent diagnosis as being “permanently incapacitatedâ€, Dozier applied for benefits under each policy through a single application form provided by Sun Life.
Sun Life denied Dozier’s claim for long-term-disability benefits on the grounds that his work was “sedentary” and Dozier was not precluded from performing sedentary work. One week later, Sun Life issued a letter denying Dozier’s claim for waiver-of-premium benefits, again based upon Sun Life’s findings that the plaintiff could perform sedentary work.
Denial of LTD and Waiver of Premium Benefits
In each denial letter Sun Life provided an explanation for the process for filing an appeal from the insurance company’s decision. Under the terms of the policy, Dozier had 180 days to decide whether to appeal either the long-term-disability or the waiver-of-premium decisions, and Sun Life had 90 days to issue a decision with respect to each potential appeal.
Administrative Review
Pursuant to the terms of the letter denying LTD benefits, Dozier sought administrative review of the adverse decision. In response, Sun Life notified Dozier that it would adhere to its initial decision in denying his long-term-disability claim and that “[a]ll administrative remedies ha[d] been exhausted and no additional information [would] be reviewed.†When Sun Life issued this letter, Dozier still had 32 days to seek administrative review of the denial of waiver of premium benefits.
Filing of State Court Action and Removal
Rather than seeking review of the waiver of benefits denial, Dozier filed a lawsuit in state court against Sun Life seeking long-term-disability and waiver-of-premium benefits. Sun Life removed the case to federal court on diversity grounds.
The district court ruled for Dozier on his claim for long term disability benefits. On the waiver-of-premium issue, however, the district court dismissed Dozier’s claims without prejudice for failure to exhaust administrative remedies. When Dozier asked Sun Life to review the decision to deny waiver of premium benefit, Sun Life refused on the ground that Dozier was outside the 180-day window for appealing the decision.
In a subsequent litigation over this issue, the district court sided with Sun Life and dismissed Dozier’s claim with prejudice for failure to exhaust his administrative remedies and because the time for seeking administrative review had expired.
The Sixth Circuit Holds That The Futility Doctrine Applies
On appeal, Dozier argued that any administrative appeal would have been futile since Sun Life had denied his long-term-disability appeal before the time for appealing the other claim had expired. The Sixth Circuit began its review by observing that when resort to the administrative review process would be an exercise in futility, the exhaustion of remedies doctrine does not apply. The Court stated:
Generally speaking, we have applied the administrative-futility doctrine in two scenarios: (1) when the “Plaintiffs’ suit [is] directed to the legality of [the plan], not to a mere interpretation of it,†Costantino v. TRW, Inc., 13 F.3d 969, 975 (6th Cir.1994) (emphases omitted); see also Fallick, 162 F.3d at 420, and (2) when the defendant “lacks the authority to institute the [decision] sought by Plaintiffs,†Hill v. Blue Cross & Blue Shield of Mich., 409 F.3d 710, 719 (6th Cir.2005). To meet the “quite restricted†standard for establishing administrative futility, we have required a litigant to “make a clear and positive indication†that further administrative review would have come to naught. Fallick, 162 F.3d at 419.
Turning to the facts of the case at bar, the Court concluded that Dozier had every reason to believe that administrative review of the waiver-of-premium claim would have been pointless. In the Court’s view, Dozier could fairly assume that the same company would apply these two tests consistently, meaning that the denial of the one claim would foreclose eligibility for relief on the other, stating:
Sun Life had made a final determination that Dozier was able to perform “the Material and Substantial Duties of his Own Occupation.†JA 145 (emphasis added). That determination necessarily precluded him from arguing with a straight face to the same insurance company that he was “unable to perform the material and substantial duties of any occupation,†JA 41 (emphasis added), the eligibility standard for obtaining the waiver-of-premium benefit. The denial of the easier-to-obtain claim precluded eligibility for the more-difficult-to-prove claim.
Further, the Court viewed Sun Life’s handling of the two claims as supporting the plaintiff’s position. Sun Life treated Dozier’s single application as an application for both benefits. Therefore, given the interconnectedness of the two applications and the policy’s requirement that appeals must be decided within 90 days, Dozier was fully entitled to seek review of the easier-to-obtain benefit and wait to decide whether to seek review of the harder-to-obtain benefit until after a response from the company. “[W]hen Sun Life denied the long-term-disability benefit, the eligibility criteria for the two benefits made the appeal of the waiver-of-premium decision look utterly pointless to anyone save a litigation-hungry employee.”
Note: The purpose of the futility doctrine is succinctly stated in the phrase: “The law does not require parties to engage in meaningless acts or to needlessly squander resources as a prerequisite to commencing litigation.†See, Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410 (6th Cir.1998).
The Court enumerated several factors behind the policy, citing Costantino v. TRW, Inc., 13 F.3d 969, 975 (6th Cir.1994):
- To help reduce the number of frivolous law-suits under ERISA.
- To promote the consistent treatment of claims for benefits.
- To provide a nonadversarial method of claims settlement.
- To minimize the costs of claims settlement for all concerned.
- To enhance the ability of trustees of benefit plans to expertly and efficiently manage their funds by preventing premature judicial intervention in their decision-making processes.
- To enhance the ability of trustees of benefit plans to correct their errors.
- To enhance the ability of trustees of benefit plans to interpret plan provisions.
- To help assemble a factual record which will assist a court in reviewing fiduciaries’actions.
To these, the Court added: cost savings for the company and applicant; elimination of frivolous claims; timeliness in bringing the dispute to a close; and, most importantly, “the consistent treatment of claims for benefits.â€
For treatment in other circuits, see:
Paese v. Hartford Life & Accident Ins. Co., 449 F.3d 435, 449 (2d Cir.2006); (noting that “Hartford’s decision that Paese was not totally disabled from his ‘own occupation’ necessarily implies a decision that he was not totally disabled from ‘any occupation’ â€); and
Lindemann v. Mobil Oil Corp., 79 F.3d 647, 650 (7th Cir.1996) (holding exhaustion required despite futility argument because “[t]he two claims are not so identical that Mobil’s denial of the claim for separation benefits demonstrates with certainty that it would deny the ERISA claim as wellâ€).
