Second Circuit: Insurer’s Failure to Render Timely Benefit Determination Gives Claimant Right to File a Lawsuit under ERISA

In McQuillin v. Hartford Life & Accident Ins. Co., No. 21-1514, __F.4th__, 2022 WL 2029879 (2d Cir. June 7, 2022), the Second Circuit considered whether a claimant is deemed to have exhausted his administrative remedies under ERISA where the claims administrator fails to make a final benefit determination within 45 days of the claimant’s administrative appeal. Here, Defendant Hartford Life & Accident Insurance Company denied John McQuillin’s claim for long-term disability benefits for failure to submit enough proof of loss to evaluate his disability. McQuillin submitted an appeal to Hartford with additional evidence. Twelve days after receipt of his appeal, Hartford informed McQuillin that it overturned its original decision to deny the claim and forwarded his claim to the claims department to decide if disability is supported by the evidence. Hartford cautioned that payment was not guaranteed, and the claims department would render a new decision. Forty-six days after McQuillin submitted his appeal and before Hartford decided his disability claim, McQuillin filed a lawsuit. A couple months into the litigation, Hartford denied McQuillin’s claim on the basis that he did not qualify as disabled. The district court accepted a magistrate judge’s recommendation to dismiss McQuillin’s suit for failure to exhaust his plan remedies since his claim was still under review by Hartford when he filed suit. McQuillin appealed to the Second Circuit. The Secretary of Labor and the American Council of Life Insurers filed opposing amicus briefs. The Second Circuit reversed the district court dismissal of the lawsuit and remanded for further proceedings.

The Second Circuit determined that the dispositive question “is whether a valid benefit determination on review must determine whether a claimant is entitled to benefits.” The court held that the ERISA regulation’s plain language, structure, and purpose requires that a benefit determination must finally decide entitlement to benefits. Because Hartford did not extend the benefit determination period (by issuing written notice prior to the end of the 45-day deadline explaining special circumstances requiring more time to review the appeal), McQuillin’s duty to exhaust administrative remedies ended by the 46^th day after he submitted his appeal.

First, the court found that 29 C.F.R. § 2560.503-1 states plainly “[t]he plan administrator shall provide a claimant with … notification of a plan’s benefit determination on review” within 45 days. Though the regulation does not define “benefit determination” the court found that its meaning is clear. A plan must provide a benefit determination, not just a determination or an appeal determination. The dictionary definition of determination supports a reading that determination means a final resolution of the claim. Hartford’s own communication with McQuillin supports this interpretation since it stated that ERISA required it to make a final decision no more than 45 days after receipt of the appeal. Second, Section 503-1’s structure supports its plain meaning. The regulation’s appeal process is clearly intended to result in a final determination of benefits. The review period is bound by strict time limits with protections for delays by the claimant and the claims administrator. Hartford’s proposed reading of 503-1’s requirements would allow multiple remands and delay resolution indefinitely. Lastly, Section 503-1’s history and purpose support the court’s interpretation. ERISA serves dual purposes of ensuring fair and prompt enforcement of rights and the encouragement and creation of ERISA plans. The regulations limit the number of appeals a claimant must pursue. Section 503-1’s text, structure, history, and purpose are consistent: Hartford was required to make a final benefits determination within 45 days. Because it did not, McQuillin had a right to pursue his plan remedies in federal court.