Carey v. United of Omaha: the Ninth Circuit finds that imprecise denial of benefits letter allows participant to sue without exhausting administrative appeals

April 21, 2016

Benefits Alert

Author(s): Charles M. Dyke

This alert was co-authored by William Lisa.

Recent Ninth Circuit decision underscores the importance of precise communication with participants in the claims decision process.

The Ninth Circuit recently held in Carey v. United of Omaha that a district court abused its discretion by granting summary judgment against a participant in an ERISA long-term disability plan who brought claims against the plan without first exhausting the plan’s administrative remedies. While Ninth Circuit precedent requires that a plan participant exhaust internal review procedures prior to bringing an action in court, under the “futility doctrine” a participant is not required to do so if exhaustion would be ineffective. In Carey, the court held that the futility doctrine applied since a person in the participant’s situation “would have thought that it would be futile to appeal.”

The plaintiff in the case, Richard Carey, participated in a welfare benefits plan provided by United of Omaha that included long-term disability coverage. Following a work place accident and other injuries, Carey applied for long-term disability benefits, which United denied. Carey then filed a complaint with the California Department of Insurance (DOI), alleging that United had improperly denied his benefits, and the DOI asked United to re-evaluate Carey’s claims. United went on to send Carey a letter, stating that it had “reviewed all of the documentation in [his] file and was unable to approve his LTD claim.” The letter further informed Carey that he had “a right to appeal the decision” and provided him with specific information about how to request an appeal.

While the district court granted summary judgment against Carey on the grounds that he had failed to exhaust the plan’s appeals process, the Ninth Circuit held the lower court abused its discretion since “[t]he plain language of the communications indicated to Carey that pursuing a further request for review . . . would have been futile.” The Ninth Circuit further rejected United’s contention that the appeal language in the denial letter precluded Carey from arguing that the futility doctrine applied since the letter did not state whether “the appeal would be conducted by an outside body or by a different body within United that might . . . find good cause” to approve Carey’s benefits application.  

The Ninth Circuit’s decision was "unpublished" and therefore of limited precedential value, but it nonetheless underscores the importance of precision in communications with participants regarding benefit plan matters. Within days of the Carey decision, the U.S. Court of Appeals for the First Circuit held in Santana-Diaz v. Metro Life Ins. Company that a plan administrator's failure to expressly notify a participant of a plan’s internal appeals deadline in the letter informing the participant that his application for benefits was denied rendered the deadline ineffective as to the participant. Like Carey, Santana-Diaz had an immediate effect of preserving a plan participant’s otherwise invalid claim because of ambiguity in the denial of benefits letter.

In light of these decisions, plan providers and administrators should consider working with counsel to draft precise language for incorporation in all communications with participants in the claims decision process.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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