Since ERISA does not specify the appropriate remedy for a plaintiff when a plan’s claims procedures are violated, the courts have been left to determine the appropriate remedy. In a recent case, the Fourth Circuit Court of Appeals found that a procedural violation of ERISA does not entitle the plaintiff to substantive benefits under a disability plan. This decision places the Fourth Circuit in direct conflict with the Sixth Circuit, which previously concluded that a claims procedure violation justified an award of a participant's disability benefits.
In the Fourth Circuit case, an employee's claim for long-term disability benefits was initially denied on the basis that she was not disabled according to the plan’s definition of disability. While an independent medical examination affirmed the employee was disabled, the plan administrator, who was also the insurer, denied the claim on appeal based on the plan's preexisting condition exclusion. The plan administrator stated that its second decision was final and refused to give the employee an opportunity to appeal the new basis of the benefit denial. The trial court ruled that the insurer could not rely on a new basis for the termination of benefits at the appeal stage because that would deprive the employee of her ERISA right to a full and fair review. Relying on a Sixth Circuit case that had reinstated a participant’s benefits as a result of a procedural violation of ERISA, the trial court decided that the appropriate remedy for the procedural violation was to reinstate the employee's disability benefits. The insurer appealed the decision.
On appeal, the Fourth Circuit agreed that the plan administrator violated ERISA in providing a new basis for the benefit denial on appeal without giving the employee an opportunity to respond, but found that the trial court's remedy was improper. Rather, the Fourth Circuit found that the proper remedy for the plan administrator's violation of the claim procedures was to remand the case to the plan administrator for a full and fair review as required by ERISA. The court explicitly disagreed with the Sixth Circuit’s approach stating that benefit reinstatement without review could result in the payment of benefits contrary to the terms of the plan -- a result that would be squarely at odds with ERISA's requirement that plans be administered in accordance with their terms. Interestingly, the court provided one exception to the general rule of remand for procedural violations in the event the record demonstrated that the benefit denial was an abuse of discretion as a matter of law.
While plan administrators should continue to adhere to plans’ administrative procedures, this recent Fourth Circuit decision is more employer-friendly than some of the other circuits that have addressed this issue to date.