The U.S. Court of Appeals for the Tenth Circuit ruled in favor of a plaintiff where a disability plan’s benefit denial letters cited the wrong sections of the summary plan description (SPD). In this case, the plaintiff worked for his employer for approximately 37 years before a disability caused him to take an early retirement. After he retired, the plaintiff submitted a written claim to the plan administrator stating that the Social Security Administration had found him to be permanently and totally disabled as of a date prior to the date he retired. The plaintiff then asserted a claim for the plan’s permanent and total disability life insurance benefit. The plan administrator subsequently denied his claim both initially and on administrative appeal.
The Employee Retirement Income Security Act of 1974 (ERISA) requires plan administrators to provide claimants with specific reasons for a claim denial. The U.S. Department of Labor’s (DOL) regulations explain that the notice of a claim denial must contain “[t]he specific reason or reasons for the adverse determination” and “[r]eference to the specific plan provisions on which the determination is based.” In this situation, the plan’s denial letters cited specific sections of the SPD, but they were the wrong sections. The benefit plan’s SPD was organized into five sections: “Healthcare Benefits,” “Life and Accident Insurance Benefits,” “Disability Benefits,” “Retirement Benefits,” and “Other Important Information.” A subsection within the “Disability Benefits” section provides for permanent and total disability life insurance benefits. However, both the initial and appeal denial letters cited the “Healthcare Benefits” section of the SPD to support the decision to deny the plaintiff’s disability benefit. Relying on the administrative record, the court held that the plan administrator’s decision to deny disability benefits based on the “Healthcare Benefits” section of the SPD was arbitrary and capricious. Furthermore, the court concluded that the appropriate remedy was to remand the case to the district court with directions for the district court to modify its order and enter judgment in favor of the plaintiff. The Tenth Circuit also instructed the lower court to consider on remand whether the plaintiff is entitled to attorney fees and prejudgment interest.
This case provides an example of the importance of establishing and following claim denial procedures. As noted above, the procedures should cite specific plan language supporting the reason for a denial. Plan administrators should review their claim denial procedures and monitor the claim denial letters to confirm that the proper process is being followed. (Spradley v. Owens-Illinois Hourly Employees Welfare Benefit Plan, 10th Cir. 2012)