Be Careful How You Word Your Claims Procedure

by Stinson Leonard Street - Employee Benefits & Compensation
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In a recent decision of the United States District Court for the Eastern District of Oklahoma, a retiree who had begun work as a union employee and who during his employment was promoted to a salaried position, sued his employer for failing to take into account his service both as a union employee and as a salaried employee in determining his benefit under the salaried employees’ pension plan. The retiree claimed that at the time that he took the salaried position, the employer had promised that his service would be aggregated under the salaried plan, which would substantially increase his benefit under that plan.

When he retired, his service was not aggregated and he was awarded retirement benefits in part under the hourly plan and in part under the salaried plan. He sued claiming the higher benefits to which he could have been entitled had his service been aggregated under the salaried plan.

The employer filed a motion for summary judgment based on the fact that the retiree had not exhausted his administrative remedies before he brought his action under ERISA. Despite the fact that ERISA does not contain an explicit exhaustion requirement, courts have uniformly held that participants in ERISA plans must exhaust a plan’s claims procedure before bringing a court action unless an exception applies. Under Department of Labor regulations, ERISA plans are required to have such claims procedures. The retiree admitted that he had failed to exhaust his administrative remedies but relied on alleged exceptions to the exhaustion requirement for his failure to do so.

Although the court found against the retiree on three of his exceptions, it accepted one of his arguments, namely that the plan had waived the exhaustion requirement. The language of the plan’s claims procedure provided as follows: “In the case of a claim that is not appealed to the Claims Committee in a timely manner by the claimant, the decision of the Claims Administrator shall be the final and conclusive administrative proceeding under the Plan, and the decision of the Claims Administrator shall be given legal deference . . . in any subsequent legal proceeding.” According to the retiree, this plan language meant that if there was no appeal, the initial decision became final and binding for purposes of legal action.

The court agreed with the retiree. According to the court, the provision clearly provided that an adverse claim decision that was not appealed is final and conclusive and the equivalent of an appealed decision. Therefore, the retiree had properly exhausted the plan’s claims procedure and could proceed with his action.

Employers should review their claims procedures to make sure that they do not contain language implying that exhaustion of administrative remedies is not required. Employers may wish to add specific provisions to the effect that exhaustion is required before a lawsuit could be brought. Otherwise, language that the employer believes means that its claims decision be given legal deference is instead held to mean that an administrative appeal is unnecessary.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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