District Court Finds ERISA Plan Does Not Require Exhaustion of Administrative Remedies As Prerequisite to Filing Suit

In Jackson v. The Guardian Life Insurance Company of America, et al., No. 22-CV-03142-JSC, 2023 WL 2960290 (N.D. Cal. Apr. 13, 2023), Northern District of California District Judge Jacqueline Scott Corley denied the insurer’s motion for summary judgment, finding that the ERISA plan language did not require exhaustion of administrative remedies prior to filing suit.

Plaintiff had been employed as a tanker truck driver for Pacific States Petroleum since 2012. In January 2020, Plaintiff submitted a form to group disability insurer, Guardian Life Insurance Company, electing coverage under Pacific States’ long-term disability plan. Around the same time, he began experiencing elbow and shoulder pain and transitioned to modified office duties to avoid further injury. A few months later, Plaintiff submitted a second coverage form, electing both short and long-term disability coverage. Pacific States responded with confirmation that Plaintiff had LTD coverage and that $34.08 in premiums would be deducted per paycheck. Shortly thereafter, Plaintiff took paid short-term disability leave. Once cleared to return to work, he did so. But, in January 2021, Plaintiff obtained elbow surgery and again went on short-term leave. When nearing the expiration of his STD leave, Plaintiff inquired about the process to obtain his long-term disability benefits. Guardian told Plaintiff he had not applied for long-term benefits because Plaintiff never submitted an “evidence of insurability” form. Plaintiff submitted another form, again selecting long-term coverage and also provided both the evidence of insurability form and confirmation that premiums had been deducted from his paycheck since May 2020.

Guardian declined to provide coverage based on Plaintiff’s “history of musculoskeletal disorder” and the “medical history on [Plaintiff’s] application.” Plaintiff requested Guardian waive the “evidence of insurability” requirement because—he wrote—he had no health issues when he started paying for long-term coverage in 2020. Guardian declined to waive the requirement. Plaintiff then retained counsel who submitted a claim on Plaintiff’s behalf. Guardian responded again stating that Plaintiff was not insured under the group LTD policy as his application was denied due to his medical history. The letter included a section titled “Your Appeal Rights” with attached instructions as to how to appeal an adverse decision. Plaintiff’s attorneys assert they never received that letter. Plaintiff then sued for wrongful claim denial, or in the alternative, for breach of fiduciary duty. Guardian responded with the instant motion for summary judgment asserting that Plaintiff failed to exhaust his administrative remedies as a prerequisite to filing suit.

The Court found that the applicable statutory and case law did not support Guardian’s motion. The Court noted that ERISA itself does not require a participant or beneficiary to exhaust administrative remedies in order to bring an action under § 502 of ERISA, 29 U.S.C. § 1132. Instead, ERISA mandates an opportunity for administrative review, see 29 U.S.C. § 1133(2), and the Ninth Circuit has treated completion of this administrative review as a “prudential exhaustion” requirement. See Wit v. United Behav. Health, 58 F.4th 1080, 1097–98 (9th Cir. 2023). From its inception, however, “prudential exhaustion” was a matter of discretion—not a bright-line rule. Indeed, the Ninth Circuit in Amato announced both the exhaustion requirement and its exceptions. Futility, inadequate remedies, and unreasonable claims procedures each excuse exhaustion. See Amato v. Bernard, 618 F.2d 559, 568 (9th Cir. 1980). The Court reasoned, under binding precedent, ERISA exhaustion is ultimately a question of contract. If a plan makes exhaustion optional, exhaustion is optional. If a plan makes exhaustion mandatory, exhaustion is mandatory. The Ninth Circuit explained “the plan, in short, is at the center of ERISA, and accordingly, this focus on the written terms of the plan is the linchpin of ‘a system that is not so complex that administrative costs, or litigation expenses, unduly discourage employers from offering ERISA plans in the first place.’” Wit, 58 F.4th at 1098. Prudential exhaustion and its exceptions are not relevant when “clear and unambiguous plan terms” create a “contractual exhaustion requirement.” Id. The Court noted that if a plan “clearly and unambiguously” requires presuit exhaustion, a plaintiff must satisfy the plan’s requirements prior to filing suit without exception. But a claimant need not exhaust when the plan does not require it.

Applying these factors to the instant action, the Court found that the plain language of Pacific States’ plan could reasonably be read as making exhaustion optional prior to an ERISA suit. The plan states: “Appeal of Adverse Benefit Determinations: If a claim is wholly or partially denied, the claimant will have up to 180 days to make an appeal.” During an appeal, the plan requires Guardian provide claimants “the opportunity” to submit evidence, view Guardian’s claim records, and receive a review based on that record. And, if Guardian denies an appeal, the plan requires Guardian provide the claimant: “a statement describing the claimant’s right to bring a civil suit under Section 502(a) of the Employee Retirement Income Security Act of 1974” including “any applicable contractual limitations period that applies the claimant’s right to bring such an action.” The Court concluded that this language does not require exhaustion. The Court further noted that the “Alternative Dispute Resolution” section of the plan tells claimants the appeal process is a “voluntary resolution dispute resolution option.” Immediately after discussing the appeal process, the plan states: Alternative Dispute Options: The claimant and the plan may have other voluntary alternative dispute resolution options, such as mediation.”  The Court also noted that the term “other” means in addition to that just described above; in other words, the appeal is a voluntary alternative dispute resolution option and mediation is another such option. The Court concluded that here, the Pacific States plan does not require exhaustion of administrative remedies so, Plaintiff had no obligation to do so.

As this case demonstrates, an insurer’s improper interpretation of policy terms can affect your claim and/or a potential award of benefits. If your insurer has denied, terminated, or otherwise limited disability claim, contact us for assistance.