Mooney, Green, Baker & Saindon, P.C.

1920 L Street, N.W.
Suite 400
Washington, DC 20036

Telephone: 202-783-0010
Telecopier: 202-783-6088

LEGAL REPORT

Spring 2002

This is one in a series of reports on recent changes in the law, provided as a service by Mooney, Green, Baker & Saindon, P.C.

Plan’s Denial of Benefits Cannot Be Supported on Grounds Not Considered in Initial Denial

In Thompson v. Life Insurance Co. Of North America, (unpublished slip op., 4^th Cir, March 4, 2002), a split panel of the Court of Appeals for the Fourth Circuit issued a ruling that may have a far-reaching effect over how employee benefit plans handle the denial of claims. In Thompson, a plan participant filed a claim for disability benefits. The administrator of the plan denied the claim on the ground that the disability resulted from a pre-existing condition, which was excluded under the terms of the plan. The participant sued. Long after the suit had been filed, the administrator concluded that the participant had also not been eligible for benefits because he had not been in "active service" at the time of his disability, as required by the plan. The district court dismissed the participant’s action based upon the subsequent determination that the participant had not satisfied the plan’s requirement that he be in active service. The participant appealed.

The Fourth Circuit reversed. In the most far-reaching part of the decision, the Court rejected the plan’s argument that the participant had not been in active service. Without reaching the merits of the plan’s contention, the Court observed that this ground had not been raised by the plan when it originally denied the claim. The Court concluded that ERISA and the claims regulations promulgated by the Department of Labor require that plans adopt procedures to safeguard the rights of participants. Permitting plans to raise new grounds for denying claims after-the-fact would circumvent these safeguards. As stated by the Court:

[the plan administrator] had a fiduciary duty to consider [the participant’s] claim fully and fairly and to provide him with the specific disqualifying reason or reasons. A district court’s review is limited to whether the rationale set forth in the initial denial notice is reasonable. A court may not consider a new reason for a claim denial offered for the first time on judicial review.

The Court went on to determine that the administrator’s determination that the participant’s condition had been preexisting was "not objectively reasonable or based on substantial evidence" and that it therefore constituted an abuse of discretion.

Because this case is unpublished, it is not directly binding upon the courts. However, under the holding of this case, a plan is limited to relying upon the specific grounds for denial that formed the basis for its original decision and that were communicated to the participant. This means that plans must be very careful to scrutinize all claims that are denied to make sure that all available bases for denial are considered, ruled upon, and communicated to the participant. Any such bases for denial that are not so considered and communicated are waived, in the view of the Thompson court. Not only does this make the claims process more onerous for plans, it makes the communication of plan denials even more crucial.

To return to the top, press here.

To return to the Mooney, Green, Baker & Saindon, P.C. Home Page, press here.

This page has been visited 3688 times.