Chattanooga, TNOn September 25, 2018, the Sixth Circuit Court of Appeals granted UNUM Life Insurance’s motion for summary judgment, thus ending Richard Ravenscraft’s UNUM disability lawsuit on the grounds that he had not exhausted administrative remedies. These are the rocks on which many long term disability lawsuits have been dashed.

An earlier opinion in this case gives food for plenty of thought about whether disability claimants should be required to exhaust internal plan appeal procedures before going to court and what it means to show that trying to do so would be futile. The more quickly claimants can get to court for a fresh review of claims, the better their chances are. The more ways over, around or through the roadblock, the better.

Painful Knees Triggered Pharmacist’s Disability Claim

Ravenscraft worked as a pharmacist and participated in a UNUM long term disability benefit plan, sponsored by his employer and covered by ERISA. He filed a claim in 1996 because of one knee replacement and serious problems with the un-replaced knee. His employer, through UNUM, denied the claim in 1997, more than 90 days after he filed his claim. ERISA requires that a plan respond to a claim within 90 days of the date that it was filed, although that period may be extended. The plan gave him another 60 days to submit additional information. He didn’t. He filed this lawsuit instead. All this happened more than two decades ago, which illustrates part of the problem.

The Exhaustion Requirement

The general rule followed by most circuits is that a claimant whose application for benefits is denied must pursue all administrative appeal processes available before filing a lawsuit, unless doing so would be futile. This is one of those rules that appears to be reasonable on its face – plan administrators should have the opportunity to correct any mistakes before being sued — but may in fact work to the serious disadvantage of disability claimants.

It burns time for the claimant who is presumably not working and thus perhaps living on short term disability payments, savings, spouse or the kindness of strangers. Delay can be a plan administrator’s greatest weapon in negotiating a paltry settlement. Some claimants simply abandon their claims and go back to work because they can no longer afford not to. ERISA does set time limits for a claim decision, but with extensions, delays, requests for additional medical records and examinations, the process can be very lengthy. Then, of course, determinations may be re-opened and the investigation and evaluation begun again.

There have also been serious arguments, as well, that plan administrators are biased against claimants in making claims determinations. In Metropolitan Life Ins. Co. v. Glenn, the Supreme Court held that employee benefit plan administrators who both evaluate and pay claims suffer from a conflict of interest and courts should weigh this factor when reviewing benefit claims brought under ERISA. If this is true in an initial claims determination, it is only more so when it comes to an internal appeal from an initial claims determination.

Finally, although many jurisdictions follow the exhaustion rule, it does not appear in the text of ERISA, itself. Rather, it is a requirement that has arisen through court decisions, and courts have carved out many exceptions. The Second, Seventh and Eleventh Circuits have concluded that the requirement does not apply when not clearly required by plan documents. The Ninth Circuit has gone even farther, requiring that plan documents explicitly require exhaustion of remedies for the rule to apply. Many circuits do not apply it to claims based on statutory violations of ERISA. In short, the general rule is full of holes.

When Does “Futility” Apply?

The most frequently cited exception to the exhaustion rule is for circumstances in which administrative appeals would be “doomed to fail.” Ravenscraft argued that further administrative appeals would have been futile because the plan administrator rendered its decision after the ninety-day period permitted under ERISA. That, according to the court, was not enough to show futility. What arguments have proved successful?

The successes tend to be very fact-specific and difficult to predict. They are also quite rare. In one case, the Sixth Circuit recognized that a further appeal would be futile where no similarly situated claim had ever succeeded. The Ninth Circuit found futility in the imprecise language of a plan administrator’s denial when no actual review of the claim had occurred.

Disability claimants whose claims are denied should take no particular comfort in the apparent availability of futility exception. All this leads back to the central problem, recognized in Metropolitan Life Ins. Co. v. Glenn, that claims determinations seem to occur on an un-level playing field. The fate of claimants often seems to depend on their ability to be able to present claims to a neutral third party. This may be an issue that ultimately requires a legislative solution.