Terri Gatti filed a lawsuit against Reliance Standard Life Insurance Company under the Employee Retirement Income Security Act (ERISA) for the reinstatement of her long-term disability benefits after Reliance terminated them. Initially approved for benefits in 1993 due to complications from Hepatitis B, Reliance later determined that Gatti's ongoing disability was due to a mental disorder, resulting in the discontinuation of her benefits after nearly seven years. This decision was based on medical evaluations indicating her Hepatitis B was inactive and that she had bipolar disorder and chronic fatigue syndrome, with the policy limiting mental illness benefits to 24 months.
Gatti appealed the decision, prompting a review by Dr. Stephen Feagin, who concluded that her disability stemmed from psychiatric issues without physically examining her. Reliance reaffirmed its decision to terminate benefits 177 days after the appeal was filed, and Gatti later submitted additional medical evidence, including a letter confirming her Hepatitis B status. However, after 279 days, Reliance again concluded the evidence was insufficient to reverse its decision.
The district court granted summary judgment in favor of Gatti, applying de novo review on the grounds that Reliance's failure to meet ERISA's administrative appeal deadlines constituted a "deemed denial" of her claim. The court also cited a conflict of interest related to Reliance’s deviation from the treating physician rule. The Ninth Circuit found that the district court erred in applying de novo review and reversed the ruling, remanding the case for further proceedings.
The district court's standard of review for denying or terminating benefits under an ERISA plan is assessed de novo unless the plan grants the administrator discretionary authority, in which case the review is for abuse of discretion. The ERISA regulations require that decisions on claims be made within specified time limits, typically 60 days, extendable to 120 days. If a decision is not made within these limits, the claim is considered denied. In this case, the district court ruled that Reliance's failure to comply with these time limits meant its decision was not an exercise of discretion. However, the court found that the precedent set in Jebian v. Hewlett-Packard Co. was not applicable, as Gatti’s plan did not include explicit time limits like those in Jebian. The Jebian decision linked the time limits to the plan language, determining that a denial due to time expiration is not discretionary. Gatti argued that any violation of the regulation's time limits should lead to de novo review, but the court rejected this, interpreting the "deemed denied" language as providing a final decision for appeals rather than eliminating the administrator's discretion.
A claimant must exhaust administrative review procedures of their benefits plan before suing in federal court, as established in Amato v. Bernard. To facilitate court access when a plan fails to make a timely decision, the "deemed denied" provision allows claimants to proceed to court if the administrator does not act within a reasonable timeframe. The U.S. Supreme Court supports this interpretation, stating that claimants can bring civil actions for both outright denials and "deemed denied" situations. This provision aligns with other ERISA regulations, which also allow claims to be deemed denied if timely notice is not provided. The regulatory amendments in 2000 clarified that if a plan does not meet procedural requirements, claimants can be deemed to have exhausted administrative remedies and pursue legal action under section 502(a) of ERISA. The history of ERISA and its regulations confirms that "deemed denied" does not limit administrators’ discretion but rather allows claimants to file lawsuits after the specified time limits. Additionally, the case of Jebian raised questions about whether procedural violations affect the standard of review; it noted that substantive remedies for such violations require proof of "substantive harm," but it remains undecided whether these violations warrant a non-deferential review standard.
Blau v. Del Monte Corp., 748 F.2d 1348 (9th Cir. 1984) established that while a claimant typically has no substantive remedy for a fiduciary’s procedural failures under ERISA, exceptions arise when such violations significantly alter the employer-employee relationship. In these cases, ongoing procedural violations may indicate arbitrary and capricious decision-making, potentially leading to substantive remedies if they result in harm to the beneficiary.
The court emphasized that procedural violations do not automatically change the standard of review unless they are severe enough to cause substantive harm, aligning with prior decisions like Bogue v. Ampex Corp., which maintained a deferential review even amid procedural infractions.
The district court's interpretation of Jebian, allowing for de novo review for any procedural violation, was rejected as inconsistent with Blau. Additionally, de novo review can be warranted under circumstances of a serious conflict of interest, requiring material evidence beyond mere appearance of conflict. The district court identified such a conflict in Reliance's disregard for the treating physician rule. However, this rule has been invalidated by Black & Decker Disability Plan v. Nord, which clarified that administrators are not obligated to give special weight to a treating physician's opinion or provide a detailed rationale when relying on conflicting evidence. Therefore, the basis for de novo review due to a serious conflict was found inadequate.
The case is remanded for reconsideration under the correct standard of review, emphasizing that ERISA procedural violations do not affect the review standard unless the beneficiary experiences substantive harm. The treating physician rule is no longer applicable. The district court is to assess Reliance's decision for abuse of discretion unless it finds sufficient evidence of substantive harm to justify de novo review. The court may consider any evidence from the administrative record prior to Reliance's final decision on February 6, 2001. The review basis primarily relies on the record before the administrator. Additionally, the district court must revisit its award of fees and costs based on the merits determination. The ruling is vacated, reversed, and remanded. Circuit Judge Rymer concurs with the reversal due to the change in the treating physician rule but suggests waiting for the Supreme Court's decision in Jebian v. Hewlett-Packard before proceeding further. He expresses alignment with Judge Tashima's dissent in Jebian regarding the interpretation of "deemed denials," noting the complexity of the issue.
