In the October Monthly Minute, we highlight a 6th Circuit decision that puts a spotlight on the adequacy of claim procedures and related judicial standards of review, and review the Supreme Court’s unwillingness to enter the fray on the enforceability of arbitration clauses in ERISA litigation.
Claims Procedure Takes Center Stage at the 6th Circuit
In a recent 6th Circuit case, Avery vs. Sedgewick Claims Management Services, 2023 WL 4703865 (6th Circuit July 24, 2023), plaintiff sought reinstatement of her LTD benefits that were terminated once her employer discovered she was engaging in activities that belied her disabled status and determined that she no longer qualified as “totally disabled” under the LTD plan. The district court rejected plaintiff’s request to have her LTD benefits reinstated, and on appeal, she argued that Sedgwick violated ERISA’s claims procedures. On review, the 6th Circuit stated that the “essential purpose” of ERISA’s claims procedure requirements is (1) to notify the claimant of the specific reasons for a claim denial, and (2) to provide the claimant with an opportunity to have that decision reviewed by the fiduciary. In resolving whether or not the plan satisfied ERISA’s requirements, the Court employed a “substantial compliance” test. The test considers all communications between the claimant and the administrator, and if those communications as a whole fulfill ERISA’s purposes, the administrator’s decision will be upheld. In this case, because Sedgewick’s communications as a whole fulfilled the essential purpose of ERISA’s requirements, it was not necessary for specific communications to strictly comply with every technical, regulatory requirement, and plaintiff’s procedural claim failed. Next, the Court reviewed plaintiff’s argument that Sedgwick arrived at the wrong decision. Given the plan document granted Sedgwick discretionary authority to determine benefits eligibility and construe plan terms, the Court wielded yet another deferential standard -- the arbitrary and capricious standard of review – to defeat plaintiff’s claim for benefits and uphold Sedgewick’s adverse benefit determination.
KMK Comment: This case serves as a helpful reminder to remain faithful to the letter and spirit of ERISA’s claims procedures, document all participant communications (even those that may not, standing alone, constitute adverse benefit communications), and include specific language in plan documents and SPDs to ensure a deferential standard of review applies to protect administrator determinations.
Arbitration Provision Enforcement Remains Murky
The Supreme Court recently declined to hear arguments from the 3rd and 10th Circuits regarding the enforceability of arbitration clauses in plan documents. In a case brought by Argent Trust Company, a trustee sought review of a 10th Circuit decision holding that an ESOP arbitration clause was not enforceable because it prevented plan participants from “effectively vindicating” certain statutory rights under ERISA. Defendants in the 3rd Circuit sought review of the court’s refusal to enforce an arbitration provision in an envelope company’s ESOP in connection with (proposed) class action investment management claims. Similar to the 10th Circuit, the 3rd Circuit reasoned that the arbitration provision was "void in its entirety" because the class action waiver constituted a nonseverable provision blocking ERISA statutory remedies. Despite disagreement among the courts as to the enforceability of arbitration clauses with class action waivers in benefit plan documents, the Supreme Court denied cert in both cases.
KMK Comment: The enforceability of plan provisions requiring arbitration continues to be subject to challenge. While the factual framework of these cases differs from those where plans seek to enforce arbitration provisions in employment agreements, a Supreme Court determination would still have lent value beyond the four corners of a plan document. It is unclear whether the Supreme Court is waiting on additional lower court determinations before taking up the issue or whether the circuit split will remain a hurdle indefinitely, particularly for plan sponsors whose plans extend beyond the boundaries of a single jurisdiction.
