District Court Denies Insurer’s Motion to Dismiss in ERISA Benefits Case, Highlighting Procedural Complexities and Exhaustion Defense

In Sellers v. Humana Life Insurance Company, et al., No. 1:24-CV-00162-MIS-GBW, 2024 WL 5187608 (D.N.M. Dec. 20, 2024), New Mexico District Judge Margaret Strickland, in the context of a FRCP 12(b)(6) Motion to Dismiss, tackled key issues surrounding the administrative exhaustion requirement under the Employee Retirement Income Security Act of 1974 (ERISA). This case highlights the balance between ERISA’s procedural requirements and the rights of claimants, shedding light on the hurdles faced by individuals seeking benefits from claim administrators.

This case arose when Plaintiff sought life insurance benefits following the tragic death of his spouse (“Decedent”) in a car accident. At the time of her passing, Decedent was insured under policies issued by Manhattan Life Insurance Company and Humana Life Insurance Company. Despite diligently filing claims and submitting necessary documentation, both insurers denied his claims. Plaintiff also appealed Manhattan’s decision, which is not central to this discussion, but it is his dealings with Humana that spotlight the difficulties faced by claimants in similar circumstances.

Humana filed a motion to dismiss Plaintiff’s claim, arguing that he failed to exhaust his administrative remedies as required by the policy terms. Humana contended that Plaintiff’s attorney failed to properly designate himself as an authorized representative, as required by the Health Insurance Portability and Accountability Act (HIPAA). Humana argued that the Notice of Appeal Letter submitted by Plaintiff’s attorney did not include the necessary authorization because it lacked Plaintiff’s signature, thereby failing to meet HIPAA’s requirements. According to Humana, this omission meant that the appeal process was never properly initiated, and thus, the internal review procedures were not exhausted.

The court found that these procedural issues alone were insufficient to warrant a dismissal at this stage of the proceedings. The court emphasized that the exhaustion of administrative remedies is an affirmative defense rather than a jurisdictional prerequisite and need not be pleaded in the Complaint. While a defendant may utilize an affirmative defense on a Rule 12(b)(6) motion to dismiss where “there is no disputed issue of fact raised by an affirmative defense, or the facts are completely disclosed on the face of the pleadings, and realistically nothing further can be developed by pretrial discovery or a trial on the issue raised by the defense”, those circumstances did not exist here. The court noted that the absence of a signature or formal authorization in the appeal letter did not conclusively prove that Plaintiff had not attempted to exhaust his remedies in other ways. The court suggested that it was possible Plaintiff had engaged in other actions or communications not detailed in the complaint that could constitute an adequate attempt at exhausting administrative remedies.

The court also highlighted the principle that procedural technicalities should not unduly bar substantive claims, especially when the claimant might have reasonably believed that the appeal was properly filed. The court stressed that such procedural defenses are better suited for consideration at a more advanced stage, rather than during a motion to dismiss. This decision underscores the importance of allowing claimants the opportunity to present their case without being prematurely dismissed over procedural missteps that must be fleshed out within the litigation.

If Humana or your insurer has denied or otherwise limited your ERISA benefits claim, contact us for assistance.