The Sixth Circuit Court of Appeals vacated a district court’s decision in favor of a Michigan nurse whose benefits were denied by Reliance Standard Life Insurance Company. The appeals concluded that the former nurse from Michigan was not required to exhaust administrative remedies before filing suit under ERISA, but remanded to the district court for further fact finding to determine if she was entitled to long term disability benefits due to the pre-existing condition and transfer of coverage provisions in the disability insurance policy.
Background
Ms. Wallace began working as a registered nurse for Oakwood Healthcare(“Oakwood”) in 2005. The employer’s long-term disability benefits were funded and insured by Hartford Life and Accident Insurance Company (“Hartford”) until December 31, 2012. As of January 1, 2013, Reliance Standard Life Insurance Company (“Reliance”) took over as the disability plan’s funder and insurer.
In September 2012, Ms. Wallace contracted an illness while traveling to Belize and her health deteriorated quickly thereafter. Her medical issues included:
- hypothyroidism,
- immune suppression disorder,
- multiple hormone deficiencies,
- hypotension,
- hypopituitarism,
- Tachycardia,
- severe joint pain, and
- arrhythmia.
While Ms. Wallace went out on medical leave beginning in October 2012 and returned to work in April 2013. During this time, Oakwood’s contract with Hartford ended and the contract with Reliance began. Ms. Wallace went out on medical leave again in May 2013 and filed a claim for long term disability benefits with Reliance.
The Long Term Disability Claim
Reliance denied Ms. Wallace’s claim for long term disability benefits, stating her disability was pre-existing because her condition began before coverage started under the policy at issue. In its denial letter, Reliance noted Ms. Wallace could request a review of the decision within 180 days and her failure to do so could affect her ability to bring a lawsuit under ERISA. Reliance’s underlying plan document neither described the claims review process nor the requirement to appeal before filing suit.
Ms. Wallace subsequently filed a claim with Hartford for long term disability benefits, which was also denied. She appealed Hartford’s decision, which was rejected, but never appealed Reliance’s claim denial. Wallace then filed suit under ERISA against both insurers, but the claim against Hartford was eventually dismissed leaving Reliance as a defendant.
The District Court’s Decision
Reliance moved to dismiss Wallace’s lawsuit, claiming that she failed to exhaust her administrative remedies by not submitting a presuit appeal of the denial of benefits. The district court disagreed, stating Wallace did not need to exhaust administrative remedies because Reliance’s plan documents did not require her to do so. The district court ruled in favor of Wallace, finding that Reliance wrongly denied her claim under the pre-existing condition provision because her coverage transferred over from Hartford under another provision in Reliance’s policy. The court awarded Ms. Wallace monthly back benefits through the date of judgment, attorney’s fees, and costs. Reliance appealed to the Sixth Circuit.
The Appellate Court’s Decision
Reliance argued that the district court erred by (1) determining Wallace was not required to exhaust administrative remedies, (2) overturning its denial of benefits, (3) improperly awarding and calculated benefits to Wallace, and (4) abusing its discretion by awarding attorney’s fees.
The appeals court also found that Ms. Wallace was not required to exhaust administrative remedies, but for a different reason than the district court. Specifically, the appeals court noted that because Reliance failed to establish a reasonable claims procedure consistent with ERISA, her administrative remedies must be deemed exhausted.
In regards to the pre-existing condition and transfer of insurance coverage provisions, the appeals court remanded to the district court for further finding of fact.
First, the pre-existing condition provision in Reliance’s policy stated benefits would not be paid for a disability caused by, contributed to by, or resulting from a pre-existing condition unless the insured has been actively at work for one full day following the end of the twelve consecutive months from when he or she became insured. The parties disagreed on when Ms. Wallace became insured under Reliance’s policy.
Second, the Transfer of Insurance provision in Reliance’s policy allowed for the individual’s effective date of coverage to coincide with the group policy’s effective date of coverage. In order to benefit from this provision, Ms. Wallace needed to be covered under Hartford’s policy when the transfer to Reliance went into effect -- the same time period during which she was out on medical leave.
The Sixth Circuit affirmed the district court’s denial of Reliance’s motion to dismiss on the basis of exhaustion but vacated the district court’s judgment in favor of Wallace and award of benefits and attorney’s fees, remanding for further proceedings.
Lawyers Specializing in Disability Insurance Claims
Because disability insurance law is complicated, as can be seen by the Wallace case, it is important to get legal help from a lawyer who focuses on disability law.
As a law firm built to focus on disability insurance, our lawyers specialize in disability insurance. We spend every day working to get our clients long term disability benefits approved.
Because federal law applies to most disability insurance claims, we do not have to be located in your state to help.
If your claim for long term disability benefits was denied or being delayed by an insurance company, call us to speak with a disability insurance attorney.
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