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Fessenden v. Reliance Standard Life Ins. Co.

United States Court of Appeals, Seventh Circuit

June 25, 2019

Donald Fessenden, Plaintiff-Appellant,
Reliance Standard Life Ins. co. and Oracle USA, Inc., Group Long Term Disability Plan, Defendants-Appellees.

          Argued October 30, 2018

          Appeal from the United States District Court for the Northern District of Indiana, South Bend Division. No. 3:15-cv-00370 - Philip P. Simon, Judge.

          Before Wood, Chief Judge, and Sykes and Barrett, Circuit Judges.

          Barrett, Circuit Judge.

         Donald Fessenden applied for long-term disability benefits through his former employer's benefits plan. After the plan administrator, Reliance Standard Life Insurance Company, denied the claim, Fessenden sub- mitted a request for review with additional evidence supporting it. When Reliance failed to issue a decision within the timeline mandated by the regulations governing the Employee Retirement Income Security Act of 1974 (ERISA), he sought review of Reliance's decision in federal court. Eight days later, after Fessenden had already filed suit, Reliance finally issued a decision, again denying Fessenden's claim.

         We must decide whether Reliance's tardiness affects the standard of review in the district court. If the decision had been timely, the court would have applied an arbitrary and capricious standard because the plan gave Reliance the discretion to administer it. When a plan administrator commits a procedural violation, however, it loses the benefit of deference and a de novo standard applies. We have recognized an exception, though, and Reliance seeks to take advantage of it: if the administrator "substantially complies" with the prescribed procedures-in other words, if the violation is relatively minor-then the court will still defer to the administrator's decision. Reliance argues that it "substantially complied" with the deadline because it was only a little bit late.

         We reject Reliance's argument because we hold that the "substantial compliance" exception does not apply to blown deadlines. An administrator may be able to "substantially comply" with other procedural requirements, but a deadline is a bright line. Because Reliance violated a hard-and-fast obligation, its late decision to deny Fessenden benefits is not entitled to deference.


         Fessenden worked as a Software Engineer Manager for Oracle USA until January 2008, when he stopped working due to fatigue and severe, chronic migraine headaches. He applied for short-term disability benefits through Oracle's employee welfare benefits plan, a fully funded group insurance policy issued by Reliance. The request was approved, and Fessenden received benefits through May 11, 2008. Oracle terminated Fessenden shortly thereafter.

         In March 2014, Fessenden submitted a claim to Reliance for long-term disability benefits dating back to his last day of work in 2008. His submission included medical records from 2006 to 2014, as well as statements from multiple doctors, all supporting his diagnosis of Chronic Fatigue Syndrome. Reliance denied his claim in an eleven-page letter stating the reasons for its decision and emphasizing the difficulties involved in reviewing a six-year-old claim. The letter told Fessenden how to request review of the decision and explained the timeline that would apply to Reliance's resolution of an appeal: Reliance would notify Fessenden in writing of its final decision within 45 days of the date that it received a request for review, unless special circumstances existed. In that event, Reliance would notify him of the final decision no later than 90 days from the date that it received the request. See 29 C.F.R. § 2560.503-l(i)(1)(i) & (i)(3)(i) (2002).

         On April 24, 2015, Fessenden submitted his request for review, complete with additional medical records and physicians' statements. But he sent it to an address different from the one included in the instructions, and Reliance did not confirm receipt of it until May 8. On June 17, Reliance notified Fessenden that it needed an additional 45 days to make its determination, and on August 27, it entered its final decision denying Fessenden's claim for long-term disability benefits. The parties disagree on when exactly Reliance's 90 days were up, but they all agree that Reliance made its final decision after the window had closed.[1]

         Before the final decision issued, but after the deadline had passed, Fessenden sued Reliance and Oracle under ERISA, see 29 U.S.C. § 1132; 29 C.F.R. § 2560.503-1(1) (2002), maintaining that he qualified for disability benefits under the plan. Normally, the lack of a final decision would mean that Fessenden's suit was premature, because an insured must exhaust the plan's review process before taking the dispute to federal court. See Edwards v. Briggs & Stratton Retirement Plan, 639 F.3d 355, 360 (7th Cir. 2011). But when a plan administrator fails to follow required procedures, such as deadlines for issuing decisions, "a claimant shall be deemed to have exhausted the administrative remedies available under the plan," 29 C.F.R. § 2560.503-1(1) (2002), and can seek judicial review even if the plan's internal process has not run its course, see Edwards, 639 F.3d at 360.

         The absence of a final decision affects more than the timing of a suit-it also affects the standard of review. When a benefit plan gives the administrator discretionary authority to determine a claimant's eligibility for benefits, we typically review the denial of benefits under an arbitrary and capricious standard. See id. That standard reflects deference to the administrator's exercise of discretion. See id.; see also Conkright v. Frommert, 559 U.S. 506, 517-18 (2010). But when an administrator fails to render a final decision, there is no valid exercise of discretion to which the court can defer, and it decides de novo whether the insured is entitled to benefits. See Trs. of Cent. States, Se. & Sw. Areas Health and Welfare Fund v. State Farm Mut. Auto. Ins. Co., 17 F.3d 1081, 1083 (7th Cir. 1994) ("Deferential review is appropriate only when the trust instrument allows the trustee to interpret the instrument and when the trustee has in fact interpreted the instrument." (emphasis added)); see also Gritzer v. CBS, Inc., 275 F.3d 291, 296 (3d Cir. 2002) ("Where a trustee fails to act or to exercise his or her discretion, de novo review is appropriate because the trustee has forfeited the privilege to apply his or her discretion; it is the trustee's analysis, not his or her right to use discretion or a mere arbitrary denial, to which a court should defer.").

         Here, however, Reliance did issue a final decision-it was just late in coming. Fessenden filed his suit on August 19, and Reliance denied his request for review on August 27. At that point, Fessenden sought to clarify the standard that the district court would apply in reviewing his claim. He urged the district court to ignore Reliance's August 27 decision and review his claim and supporting ...

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