Terri Gatti v. Reliance Standard Life Insurance Company, Terri Gatti v. Reliance Standard Life Insurance Company

Citations: 415 F.3d 978; 2005 WL 1705509Docket: 03-15562, 03-16183

Court: Court of Appeals for the Ninth Circuit; July 22, 2005; Federal Appellate Court

Combined Opinion SummaryCombined Opinion Original

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Reliance Standard Life Insurance Company appeals a summary judgment from the district court favoring Terri Gatti regarding her ERISA claim for reinstatement of long-term disability benefits. Initially, Reliance approved Gatti's benefits in 1993 due to complications from Hepatitis B. However, in 2000, Reliance determined her disability stemmed from a mental disorder, leading to the discontinuation of benefits after 24 months, as mental illness benefits were capped under her policy. Reliance's decision was based on medical reports indicating Gatti’s Hepatitis B was inactive and her diagnosis of bipolar disorder and chronic fatigue syndrome. 

Gatti appealed, during which Reliance reviewed her records without an examination and upheld its decision to terminate benefits. After Gatti submitted new evidence, including a letter confirming her Hepatitis B status, Reliance again declined to reinstate her benefits. The district court granted summary judgment for Gatti, applying de novo review on grounds that Reliance did not adhere to ERISA’s appeal processing deadlines, effectively deeming the claim denied. The court also cited Reliance's conflict of interest for not following the treating physician rule.

The Ninth Circuit found that the district court erred in applying de novo review and reversed the decision, remanding the case for further proceedings. The court emphasized the need to determine whether the appropriate standard of review was applied concerning Reliance's discretion in benefit termination.

District courts review ERISA plan benefit decisions under a de novo standard unless the plan grants the administrator discretionary authority, in which case the review is for abuse of discretion. ERISA regulations set minimum procedures for beneficiary claims, including a sixty-day decision timeframe, extendable to 120 days. Failure to decide within these limits results in a claim being deemed denied. In this case, the district court ruled that Reliance's failure to meet these time limits did not constitute an exercise of discretion, referencing Jebian v. Hewlett Packard Co. However, the court concluded that Jebian does not apply here, as the plan in Gatti's case lacked specific time limits present in Jebian.

The Jebian court noted that its ruling was based on the plan's language regarding time limits, which were not applicable in Gatti's case. The Jebian opinion acknowledged that violations of time limits could lead to a "deemed denied" status but did not decide if this altered the standard of review. The court rejected Gatti’s argument that such violations eliminate the administrator's discretion. Instead, it interpreted the "deemed denied" language as providing a final decision for appeal, allowing claimants access to the courts if the administrator fails to make a decision within the regulatory timeframe. This mechanism ensures claimants can seek judicial review in cases where administrative decisions are delayed beyond reasonable limits.

The U.S. Supreme Court, in Mass. Mut. Life Ins. Co. v. Russell, interpreted the regulatory provision 29 C.F.R. 2560.503(1)(h)(4) to allow claimants to bring civil actions to contest the merits of their claims, similar to challenging outright denials of benefits. This ruling reversed a Ninth Circuit decision that found a fiduciary liable for an excessive delay in responding to a beneficiary's appeal. The interpretation of "deemed denied" aligns with other ERISA regulations, such as 29 C.F.R. 2560.503-1(e)(2), which allows claimants to proceed to the review stage if a claim denial notice is not timely provided. The Ninth Circuit previously noted that such language aims to help claimants navigate potential obstacles in the appeals process. Amendments made to the regulation in 2000 further clarify that a failure to follow required procedures results in claimants being deemed to have exhausted administrative remedies, thus permitting judicial review under section 502(a) of ERISA. Although the Department of Labor did not explicitly explain the amendments, it emphasized that section 503 of ERISA aims to ensure timely access to court for denied claims. The interpretation is reinforced by Gatti's actions, as she continued to submit documentation beyond the 120-day deadline, indicating her belief that her claim had not been deemed denied. The document rejects Gatti's interpretation of "deemed denied" as a limitation on the administrator's discretion, concluding that she could have pursued a lawsuit after the expiration of time limits but chose to engage in the claims review process until her appeal was denied. Additionally, the question of whether procedural violations affect the standard of review remains unresolved, although it was established that substantive remedies for such violations are contingent upon proving substantive harm.

Blau v. Del Monte Corp. establishes that if an ERISA benefits administrator fails to comply with procedural requirements, it may not normally result in a substantive remedy for the claimant. However, when procedural violations are "wholesale and flagrant," they can significantly alter the employer-employee relationship and may lead to substantive harm for the beneficiary. In such cases, a court should consider these violations when assessing whether a decision to deny benefits is arbitrary and capricious. The ruling clarifies that not all procedural violations affect the standard of review; only those that are egregious enough to impact the substantive relationship will do so. 

Furthermore, de novo review of an administrator's decision is warranted if a serious conflict of interest is demonstrated with substantial evidence, which may include the failure to adhere to the treating physician rule. However, the treating physician rule has been superseded by a later Supreme Court decision, which determined that plan administrators are not required to give special weight to a claimant's physician's opinions.

A serious conflict in the district court's conclusion was based on the outdated treating physician rule, thus de novo review is not warranted. The case is remanded for reconsideration under the correct standard of review, which states that procedural ERISA violations do not change the review standard unless the beneficiary experiences substantive harm. The district court should evaluate Reliance's decision for abuse of discretion unless it finds other evidence of substantive harm that justifies de novo review. The court may consider any part of the administrative record before February 6, 2001, the date of Reliance's final decision. The outcome of the merits determination will also affect the reconsideration of fees and costs awarded. The relevant regulation was amended in 2000, impacting claims filed after January 1, 2002, but the earlier version applies to Gatti's claim since it was submitted prior to that date. The district court’s reliance on the Jebian decision, which has since been superseded, is noted, particularly regarding the interpretation of "deemed denied" and its implications for administrative discretion. The excerpt also references the timely response requirements for administrators and the potential for beneficiaries to pursue remedies if these procedures are not followed.

The administrative history reveals that the "deemed denied" language was incorporated in the 1977 regulation to facilitate access to review for claimants when a plan fails to act on a claim within specified timeframes. Under 29 C.F.R. 2560.503-1(e)(2), if a claim is not addressed in time, it is deemed denied, allowing the claimant to move to the review stage. This language was intended to assist claimants in overcoming barriers to the appeals process, as established in White v. Jacobs Eng'g Group.

Amendments in 2000 altered the regulation, removing "deemed denied" and stipulating that if a plan does not adhere to the regulatory requirements, a claimant is considered to have exhausted administrative remedies and may seek judicial relief under section 502(a) of ERISA. Although the Department of Labor did not clarify the rationale for this change, it indicated that section 503 aims to ensure timely court access for claimants with denied claims.

The interpretation of "deemed denied" does not impose temporal restrictions on the administrator’s discretion. The case of Gatti illustrates this, as she continued to submit materials beyond the 120-day deadline, implying her understanding that her claim was not deemed denied. The interpretation upheld here allows Gatti to file a lawsuit only after the time limits expired, which she chose to bypass by engaging with Reliance’s claims review process until her appeal was denied.

Additionally, the excerpt touches upon unresolved questions from Jebian regarding procedural violations and their effect on the standard of review. Although procedural violations might lead to substantive remedies if they cause harm, it remains undecided whether such violations warrant a non-deferential standard of review. The case of Blau v. Del Monte Corp. is cited, highlighting that typically, a claimant does not receive substantive remedies for procedural failures unless significant harm is demonstrated.

The Blau panel identified that significant procedural violations in ERISA cases can fundamentally alter the employer-employee relationship, which affects the balance of disclosure, reporting, and fiduciary duties. Such violations may lead to substantive harm for beneficiaries, necessitating a court's consideration of ongoing procedural violations when assessing whether an administrator's denial of benefits was arbitrary and capricious. While the panel did not determine a singular standard of review for all cases of procedural violations, it indicated that the severity of such violations—described as "wholesale and flagrant"—can justify a departure from the deferential review typically applied. The district court's interpretation of Jebian, allowing for de novo review for any procedural violation, was deemed inconsistent with Blau. The court concluded that only substantial violations that significantly impact the employer-employee relationship warrant a change in the standard of review. Furthermore, de novo review may be warranted if a serious conflict of interest is demonstrated by a beneficiary, supported by substantial evidence beyond mere appearances. The case of Reliance's failure to adhere to the treating physician rule was cited as an example of a serious conflict, although this rule is no longer applicable in ERISA cases as established by Black & Decker Disability Plan v. Nord.

Courts cannot mandate that administrators give special consideration to a claimant's physician's opinions, nor can they impose a specific burden of explanation when credible evidence contradicts a treating physician's evaluation. The district court's finding of a serious conflict based on the now-invalid treating physician rule does not justify a de novo review. The case is remanded for reconsideration using the appropriate review standard, which states that procedural violations of ERISA do not change the review standard unless the beneficiary experiences substantive harm. Unless the district court finds other evidence of substantive harm justifying de novo review, Reliance's decision should be evaluated for abuse of discretion.

The district court may consider any part of the administrative record up to February 6, 2001, the date of Reliance's final decision, and this record serves as the primary basis for any review. The district court should also reassess its award of fees and costs based on the outcomes of the merits determination. The excerpt notes amendments to relevant regulations effective for claims filed after January 1, 2002, which affect response times and the implications of procedural violations on claims. The prior version of the regulations applies to Gatti's claim since it was filed before 2002. 

Additionally, the district court's reliance on the Jebian decision is acknowledged, with a note that the later opinion supersedes the earlier one while maintaining that "deemed denied" language in a benefits plan limits an administrator's discretion. The summary emphasizes that the interpretation of deadlines in other contexts, such as those set for the U.S. Fish and Wildlife Service, aligns with this approach.

The court ruling in Badgley establishes that discretion is limited when statutory deadlines are not adhered to, as demonstrated in Jebian's case, where the administrator failed to respond to an appeal within the 120-day limit, which expired on March 16, 1999. Jebian filed a district court complaint on September 29, 1999, after not receiving a final decision for over six months. The regulatory history indicates that the "deemed denied" language was included to ensure claimants could seek review if the plan did not act in a timely manner. Judge Rymer concurs with the decision to reverse based on changes to the "treating physician rule" but questions the differing interpretations of "deemed denials" within a plan versus regulatory contexts.