Opinion ID: 183519
Heading Depth: 4
Heading Rank: 3

Heading: Compliance with Section 503 of ERISA and Accompanying Regulations

Text: Section 503 of ERISA requires that every employee benefit plan must: (1) provide adequate notice in writing to any participant or beneficiary whose claims for benefits under the plan has been denied, setting forth the specific reasons for such denial, written in a manner calculated to be understood by the participant, and (2) afford a reasonable opportunity to any participant whose claim for benefits has been denied for a full and fair review by the appropriate named fiduciary of the decision denying the claim. 29 U.S.C. § 1133. The accompanying regulations note that this section sets forth minimum requirements for employee benefit plan procedures pertaining to claims for benefits by participants and beneficiaries. 29 C.F.R. § 2560.503-1(a). The regulations require a plan administrator to provide written notification of any adverse benefit determination setting forth [I]n a manner calculated to be understood by the claimant ... (i) [t]he specific reason or reasons for the adverse determination; (ii) [r]eference to the specific plan provisions on which the determination is based; (iii) [a] description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary[.] Id. § 2560.503-1(g)(1). The District Court determined that § 503 and the accompanying regulations were irrelevant to Miller's claim, as it was brought pursuant to § 502. See Miller, 2010 WL 890016, at . The District Court erred in this regard. Although § 502 provides the private right of action to bring a claim to recover benefits due, § 503 sets forth the basic requirements governing ERISA plans. To that end, a plan that does not satisfy the minimum procedural requirements of § 503 and its regulations operates in violation of ERISA. Therefore, an administrator's compliance with § 503 in making an adverse benefit determination is probative of whether the decision to deny benefits was arbitrary and capricious. See, e.g., Majeski v. Metro. Life Ins. Co., 590 F.3d 478, 484 (7th Cir.2009); Hobson v. Metro. Life Ins. Co., 574 F.3d 75, 87 (2d Cir.2009); Grossmuller v. Int'l Union, 715 F.2d 853, 856-57 (3d Cir.1983); Kao v. Aetna Life Ins. Co., 647 F.Supp.2d 397, 410 (D.N.J. 2009). Indeed, the Department of Labor has noted that the procedural minimums of the regulation are essential to procedural fairness. Department of Labor Pension and Welfare Benefits Administration, 65 Fed.Reg. 70246, 70255 (proposed Nov. 21, 2000) (codified at 29 C.F.R. § 2560). We briefly addressed whether a denial letter set forth adequate specific reasons under § 503 and the accompanying regulations in Grossmuller, 715 F.2d at 858. There, we determined that the administrator's termination letter did not comply with § 503 where it informed the claimant that his benefits were terminated because he was found to be otherwise gainfully employed, without providing any factual basis to support the decision or stating upon what evidence the administrator relied. See id. Conversely, in Syed v. Hercules Inc., 214 F.3d 155 (3d Cir.2000), we concluded that the letter satisfied § 503 where it explained that the claimant's benefits were terminated because the results of the particular doctor's independent medical evaluation demonstrated that he was no longer disabled. See 214 F.3d at 162-63. The administrator reached this conclusion after analyzing the present physical diagnosis in light of the definition of total disability under the plan. See id. Other decisions addressing this discrete issue are also instructive. For example, the Seventh Circuit held in Halpin v. W.W. Grainger, Inc., that the termination letter did not satisfy § 503 when it stated that no objective medical evidence was contained in [the] claim to substantiate total disability from any gainful occupation. 962 F.2d 685, 692-93 (7th Cir.1992). The court instructed that the bare conclusions in the letter, unsupported by any rationale, did not set forth specific reasons as mandated by § 503. See id. at 693. Similarly, in VanderKlok v. Provident Life and Accident Insurance, 956 F.2d 610 (6th Cir.1992), the Sixth Circuit found that the denial letter did not comply with § 503. There, the letter informed the claimant accordingly, [w]e regret that the claim does not qualify ... because the proof does not establish that the insured is totally and permanently disabled. 956 F.2d at 616. The court determined that the letter's purported reasons were simply unsupported conclusions that did not provide any specific information as to the basis for the denial. See id. By contrast, in Hobson v. Metropolitan Life Insurance Co., 574 F.3d 75 (2d Cir. 2009), the Second Circuit reasoned that the denial letter complied with § 503 because it described the precise information that was lacking from the file, such as whether claimant's depression was severe enough to result in suicidal thoughts or hospitalization, whether the seizures were ongoing, and whether the claimant exhibited the diagnostic criteria for the relevant disease. Accordingly, the Second Circuit found that the administrator's letter presented the claimant with a specific rationale for the denial of benefits, not simply a conclusory statement that she was ineligible. See id. at 87. We find the termination letter in this case to be legally deficient under § 503 for two reasons. First, the letter does not provide specific reasons for [the] denial, written in a manner calculated to be understood by the participant. 29 U.S.C. § 1133. The letter states that American is unable to verify either the existence of a continuing medical disability or [Miller's] continued substantial progress towards obtaining [his] FAA medical certification. (App. at 98.) American's inability to verify Miller's disability is a bare conclusion that does not provide a specific reason for the termination decision. Rather, this purported explanation is a general blanket assessment that Miller is ineligible for disability benefits. The letter makes no mention of Miller's specific diagnoses nor the precise information that is lacking from his file. Moreover, the letter provides no insight into why the records that American received, and based on which American previously awarded and reinstated benefits, would no longer support a disability finding. American was on notice that this letter was not written in a manner calculated to be understood by the participant because Miller subsequently inquired as to the specific reasons for the termination, but was simply referred back to the letter itself. The letter's mention of FAA certification is the most specific reason given for the termination, but this reference is misleading because it was not a prerequisite under the Plan and therefore not a valid reason to deny Miller's LTD benefits. The language in the letter is more akin to the conclusory statements in Grossmuller, Halpin, and VanderKlok, where the plan administrator summarily concluded that the claimant was ineligible, or that the evidence received did not support the claim without providing further factual support. See Halpin, 962 F.2d at 692-93; VanderKlok, 956 F.2d at 616; Grossmuller, 715 F.2d at 858. And, unlike the letter in Hobson that set forth the precise information lacking from the file or the decision in Syed that analyzed the physical diagnosis in light of the definition of total disability, the letter here did neither. See Hobson, 574 F.3d at 87; Syed, 214 F.3d at 162-63. Thus, we believe that the language of the termination letter is conclusory and does not provide the specific reasons as to why Miller was no longer eligible for benefits, falling short of the requirements under § 503. Second, we conclude that the termination letter does not provide the precise information necessary to advise Miller how to perfect his claim. The regulations accompanying § 503 require the termination letter to describe any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary. 29 C.F.R. § 2560.503-1(g)(1)(iii). Here, the letter informed Miller that [i]n order to receive further favorable consideration, you will need to demonstrate that you are actively pursuing obtaining your FAA medical certification. (App. at 98.) Obtaining this certification, however, is not a requirement under the Plan and would therefore not serve to change his disability status. Given that the letter did not set forth any additional instruction as to how Miller could achieve a favorable disability determination, it does not comply with 29 C.F.R. § 2560.503-1(g)(1)(iii). The termination letter here does not satisfy the basic procedural mandates of ERISA, as set forth in § 503 and the relevant regulations. Instead of ensuring the procedural fairness of the termination decision, this letter made it exceedingly difficult for Miller to understand, let alone challenge, the bases for American's course of action. For that reason, American's noncompliance with the statute weighs in favor of finding that their decision was arbitrary and capricious.