Substantial Compliance - No Excuse

The reality is that many employers do not pay strict attention to their ERISA compliance duties. It is not uncommon for employers to think that as long as they are “generally compliant” then they have satisfied their overall duty.

According to the Second Circuit, the doctrine of “substantial compliance” does not excuse a long-term disability benefit plan administrator’s failure to comply with ERISA regulations. [Nichols v. Prudential Insurance Co. of America, 2d Cir., No. 04-1445 (April 21, 2005).] It’s a case proving “good enough” never is.


Background

Cecilia Nichols worked as an internal auditor for Sumitomo Trust and Banking Co. and participated in its long-term disability benefit plan administered by Prudential Insurance Co. of America. In April 2000, she submitted a claim for benefits due to several medical conditions resulting in pain, fatigue, weakness, and depression. Prudential started paying her benefits, and then terminated them in December 2001 after reviewing her claim.

Nichols appealed the termination of benefits on April 11, 2002. Prudential contacted her 67 days later (beyond ERISA’s 60 day required limit), informing her it was reviewing her appeal and would contact her in 30 days. On July 1, 2002, Prudential requested that Nichols submit to an independent medical examination, which Nichols refused to do. On July 25, 2002, Prudential informed Nichols it still was reviewing the appeal and requested further medical records. Nichols filed a lawsuit in the US Court of Appeals for the Second Circuit on October 25, 2002, which was 197 days after she had filed her appeal.

Prudential argued that Nichols failed to exhaust her administrative remedies. Nichols responded that she was not required to exhaust her administrative remedies because ERISA regulation 29 C.F.R. § 2560.503-1(h)(1)(i) requires that a benefits denial must be decided within 60 days (not 67) of a participant’s appeal, or 120 days if an extension is requested.

The court in this case agreed with Nichols’ contention although the plan, through Prudential, had “substantially complied” with the ERISA requirements.

In general, substantial compliance is a doctrine that forgives technical non-compliance if there is some evidence that the employer was generally making a good faith effort to comply but simply fell short. In this case, the court was faced with a more narrow issue, namely if substantial compliance can block or delay a plaintiff’s access to the federal courts.”

The court said that the doctrine of substantial compliance had to be rejected if it interfered with someone’s rights under ERISA. In this case, applying the substantial compliance doctrine would have delayed accrual of the right to sue and interfered with ERISA protections.


We wish to thank Willis for contributing to this article.  The information contained in this article is not intended to provide legal advice.  Please consult an attorney regarding issues raised in this article.



The article was provide by Julio C. Ortiz, Partner First Insurance Group, Inc’s Employee Benefit Practice And Willis’ Legal Research Group

 

For any questions or comments please contact us at: info@intelliobm.com or call us at 787-756-5880