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ERISA Blog

Halo, Salisbury, and Seeking an Extension Without “Special Circumstances”

Claims Regulation and It’s the Portions Relevant to Salisbury
Under Sections 503 and 505 of ERISA, Congress empowered the Department of Labor (“DOL”) to issue rules and regulations governing claims procedures for employee benefit plans.  Pursuant to this authorization, the DOL promulgated a claims-procedure regulation -- 29 C.F.R. § 2560.503-1, which provides participants with, among other things, the opportunity to appeal any adverse claim determination within 180 days of that decision.  29 C.F.R. §§ 2560.503-l(b), 2560.503-1 (h)(3)(i). An appeal to the administrator is required before a lawsuit can be filed in federal court. See Greifenberger v. Hartford Life Ins. Co., 131 Fed. Appx. 756, 758 (2d Cir. 2005).  Once an appeal is filed, the administrator has 45 days to render a decision. 29 C.F.R. § 2560.503-1 (i)(3)(i) (when read in conjunction with § 2560.503-1 (i)(1)(i)). The plan administrator may request a single 45-day extension, but only if “the plan administrator determines that special circumstances … require an extension of time for processing the claim.” 29 C.F.R. § 2560.503-1 (i)(1)(i). Before taking an extension, the plan administrator must provide written notice to the claimant “indicat[ing] the special circumstances requiring an extension of time and the date by which the plan expects to render the determination on review.” Id. (emphasis added).

Deferential Review
Generally, an adverse benefit determination is reviewed under the deferential arbitrary and capricious standard of review so long as the benefit plan bestows the administrator or fiduciary with discretionary authority to determine eligibility for benefits or to construe the terms of the plan. Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989).  Because a large number of plans have the resources to implement these discretionary grants, a large percentage of claimants face the deferential arbitrary and capricious standard of review irrespective of the administrator’s failure to adhere to the foregoing claims-procedure regulation.  This was termed the “substantial compliance doctrine” which, as its name indicates, excused failures to comply with the DOL's claims-procedure regulation if the record otherwise showed that the administrator “substantially complied” with the regulation's requirements.

Halo v. Yale Health Plan
In Halo v. Yale Health Plan, however, the Second Circuit rejected the substantial compliance doctrine and, instead, held that an administrator’s failure to comply with the regulation would result in that claim being reviewed de novo in federal court unless the plan had otherwise established procedures in full conformity with the regulation and could show its failure to comply with the regulation in the processing of a particular claim was inadvertent and harmless 819 F. 3d 42, 55 (2d Cir. 2016).  The Court concluded that “the substantial compliance doctrine ... is flatly inconsistent” with the DOL's claims-procedure regulation and its stated purpose for the regulation  -- to clarify that the procedural minimums of the regulation are essential to procedural fairness and that a decision made in the absence of the mandated procedural protections should not be entitled to any judicial deference.” ERISA Rules and Regulations for Administration and Enforcement; Claims Procedures, 65 Fed.Reg. 70,255 (Nov. 21, 2000). In other words, the Court held that a plan administrator must strictly adhere to the regulation to obtain the more deferential arbitrary and capricious standard of review.

Salisbury v. Prudential Insurance Company of America
In Salisbury v. Prudential Insurance Company of America, the question was whether Prudential violated the claims-procedure regulation when it requested an extension of time to decide Salisbury's appeal so that it could continue its ongoing review of Salisbury file.  No. 15-CV-9799, 2017 WL 780817, at *3 (S.D.N.Y. Feb. 28, 2017).  The Court looked to the DOL’s preamble, as the Court did in Halo, to determine the meaning of special circumstances (discussed above).  The Court found that the DOL expressly stated that the time periods for decision-making are to be considered maximum periods, not automatic entitlements.  The DOL further explained that it is unreasonable to seek extensions where the claim presents no particular difficulty, but rather it is the work load/schedule of the administrator (or its reviewing professionals) that causes the delay, as was the case in Salisbury.  Furthermore, the DOL (and the Court) noted that a plan administrator's failure to provide a sufficient “special circumstance” would constitute a violation of the claims-procedure regulation.  65 Fed. Reg. at 70,248, n. 8 (“[I]n some cases, delaying a decision until the end of the applicable maximum period may be unreasonable under the circumstances and thus a violation of the procedural standards.”).

The Court in Salisbury found that Prudential violated the claims-procedure regulation by seeking an extension without “special circumstances.” The only rationale for the extension provided in the company's written notice was that Prudential needed additional time “to allow for review of the information in Ms. Salisbury's file which remains under physician and vocational review.” 2017 WL 780817, at *1.  The Court astutely noted that virtually every appeal of the denial of a disability benefits claim will require “physician and vocational review,” and thus this cannot constitute a valid “special circumstance.” Prudential’s written notice of extension did not identify any unusual difficulties associated with Salisbury's claim.  Because of its antics, Prudential lost the huge benefit of deferential review.

Judge Alison Nathan’s decision makes sense, because to find that Prudential's justification for seeking an extension constituted a “special circumstance” would mean that virtually any request for an extension would be permissible, an outcome the Department of Labor has expressly rejected.

Andrew Davis