An Example of Long Term Disability Denial
Recently a Judge in the Western District of Washington allowed an insured to file a lawsuit against his long-term disability company where the insurance company alleged that the insured failed to cooperate with its review and failed to exhaust his administrative remedies. In Ayres v. Life Insurance Company of North America, 2024 WL 707454 (W.D. Wash), the insured filed a lawsuit for alleged violations of the Employee Retirement Income Security Act (ERISA) of 1974. He asserted that LINA was responsible for approving and paying benefits under the LTD policy. Importantly, Mr. Ayres alleged that the insurance company “failed to provide benefits due under the terms of the LTD Plan and failed to make a timely decision, and these actions constituted breaches of the LTD Plan.”
In response, the insurance company sought to have the lawsuit dismissed arguing that, “Plaintiff has failed to exhaust his administrative remedies under the terms of the LTD Plan. Accordingly, under well-settled ERISA law that requires administrative exhaustion before a plaintiff can seek judicial review, the Court should dismiss Plaintiff’s claims.”
In Ayres, over the course of six months, the insured provided medical documentation, notes from his medical team, claim forms, and other proof of his disability. In response, the insurance company continued to allege that additional medical records/information were required but did not identify the exact medical records it was seeking, and which Mr. Ayres allegedly did not provide. In sum, the insurance company was delaying its decision and likely trying to force Mr. Ayres to give up or go back to work even though he was disabled. Finally, tired of this denial and delay tactics, he filed a lawsuit.
The Appeal Decision
Very often, long-term disability policies require an appeal decision to be made before a lawsuit can be filed. However, Section 502 of ERISA, 29 U.S.C. § 1132, simply allows an ERISA plan participant or beneficiary to bring an action in district court “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.”
The Ninth Circuit has held that “before bringing suit under § 502, an ERISA plaintiff . . . ‘must avail himself or herself of a plan’s own internal review procedures before bringing suit in federal court.’” Vaught v. Scottsdale Healthcare Corp. Health Plan, 546 F.3d 620, 626 (9th Cir. 2008). This is called the exhaustion requirement. The purposes of the exhaustion requirement are “the reduction of frivolous litigation, the promotion of consistent treatment of claims, the provision of a non-adversarial method of claims settlement, the minimization of costs of claim settlement, and a proper reliance on administrative expertise.” Diaz v. United Agr. Employee Welfare Ben. Plan and Trust, 50 F.3d 1478, 1483 (9th Cir. 1995). However, the trial court has the discretion to apply a judicially created exception to excuse the failure to exhaust administrative remedies. See Borland v. Qwest Corp., 178 F.App’x. 629, 630 (9th Cir. 2006).
Moreover, under Ninth Circuit precedent, ERISA’s court-created exhaustion requirement applies only if the relevant plan requires exhaustion. See Spinedex Physical Therapy USA Inc. v. United Healthcare of Ariz., Inc., 770 F.3d 1282, 1299 (9th Cir. 2014); see also Jackson v. Guardian Life Insurance Company of America¸ 2023 WL 2960290 (N.D. Cal. April 13, 2023); Greiff v. Life Insurance Company of North America, 386 F.Supp.3d 1111 (D. Arizona, July 5, 2019).
In Ayres, the insured was able to prove that the LTD policy in question did not expressly require claimants to exhaust their administrative remedies to pursue judicial review. Thus, the Court denied the insurance company’s motion to dismiss.
There are often other ways that an insured can file a lawsuit before an appeal decision is made. If an insurance company violates the Department of Labor regulations for reviewing ERISA claims, we can allege that your administrative remedies were deemed exhausted under 29 C.F.R. Section 2560.5033-1(l) because the insurance company failed to comply with the DOL Regulations. Many claims handling errors can render the court-created exhaustion requirement inapplicable to your claim.
In addition, in one of our past cases, Smith v. Weekly Disability Income Ins. for Employees of Friends of KEXP, 2010 WL 890068 (W.D. Wash., March 09, 2010), we convincingly invoked the futility of exhaustion exception because the short-term disability company was the same as the long-term disability company and it denied the STD claim twice. When we sued, the company tried to dismiss the case because it claimed that we needed to do another appeal of the LTD claim. We argued that would be futile given the circumstances. The Court agreed stating “There are occasions when a court is obliged to exercise its jurisdiction . . . the most familiar examples perhaps being when resort to the administrative route is futile or the remedy inadequate.” The exception “is designed to avoid the need to pursue an administrative review that is demonstrably doomed to fail.” In Smith, the Court concluded that the futility exception to the exhaustion requirement applied, preventing summary dismissal of our client’s long-term disability benefits claim. Not surprisingly, after we won the motion, the case was settled.
The Aaron Engle Law Difference
So if you are having trouble with your disability insurance carrier making a decision on your claim, delaying its review, or denying your claim because it alleges that you failed to cooperate, give Aaron Engle Law a call and we will review your claim at no charge to see if we can help you.