Not too long ago, the Ninth Circuit Court of Appeals gave ERISA plan administrators a sharp jolt when it ruled that a plan’s failure to decide a benefits claim within the time limits set forth in the plan or under Department of Labor regulations would deprive the plan’s ultimate determination of the claim of the usual deferential judicial review that claims determinations often receive in litigation. See Jebian v. Hewlett-Packard Company Employee Benefits Organization Income Protection Plan, 349 F.3d 1098 (9th Cir. 2003), cert denied, 125 S.Ct. 2956 (2005). Even worse, the Jebian panel noted, the same principle might apply generally in the event of any procedural violation committed by plan administrators in the course of deciding a benefits claim. Complying precisely with each and every procedural requirement under the plan document and the regulations is not always easy, and plan administrators have therefore been justifiably concerned that, under the Jebian decision, the inevitable technical violations that occur from time to time will mean their determinations will be more frequently subjected to “de novo” review by the courts — and more frequently reversed.¹

Those same plan administrators can now breathe a little bit easier. In two recent decisions, the Ninth Circuit expanded on its ruling in Jebian and made clear that technical violations of ERISA’s claims procedures — even deciding a claim after the ERISA-prescribed time period has expired — do not necessarily alter the standard of review that courts apply to benefits determinations. See Gatti v. Reliance Standard Ins. Co., 2005 WL 1705509 (9th Cir. 2005); Lamantia v. Voluntary Plan Administrators, Inc., 401 F.3d 1114 (9th Cir. 2005). Instead, the Ninth Circuit held, a district court must look to see whether the procedural violations were “so flagrant as to alter the substantive relationship” between the plan and participant, and caused the participant substantive harm, before applying de novo review. Gatti, 2005 WL 1705509 at *5.

The Jebian Decision
In Jebian, the independent claims administrator for the company’s LTD plan exceeded the (then) permissible 120-day period in deciding a participant’s appeal from the administrator’s earlier decision that the participant did not qualify for LTD benefits. Both the plan and the applicable Labor regulations at that time stated that claims that were not decided within the 120-day period shall be “deemed to have been denied.” Because the deferential scope of review that a plan administrator’s ruling on benefits claims ordinarily enjoys is grounded in plan language conferring “discretion” on plan administrators, the Jebian court held that no such deference was warranted where the plan itself makes clear that the denial decision is “necessarily the mechanical result of a time expiration rather than an exercise of discretion.” Jebian, 349 F.3d at 1105. The court went on to note, somewhat ominously, that deferential review of administrative decisions “is merited for decisions regarding benefits when they are made in compliance with plan procedures,” and that deference may not be warranted when decisions are not made in compliance with those procedures. Id.

The Lamantia and Gatti Decisions
In Lamantia, the plan’s claims administrator — ironically, the same one as in Jebian — once again exceeded the permissible time limit in ruling on a participant’s appeal from a denial of a claim for LTD benefits. This time, however, the Ninth Circuit found that the delay in reaching a final decision was due to an ongoing, good-faith exchange of information with the participant — who had actually requested the extension of time in the first place so that she could file additional documentation in support of her claim. Under these circumstances, the court held that the plan administrator had in fact exercised its discretion in the very act of allowing the participant to file information beyond the deadline, and thus its decision should not be deprived of deferential review by the court.

In the even more recent Gatti decision, the court went further and announced that mere technical violations would not generally alter the standard of review applied to an administrator’s claims decisions. In this case, the plan administrator denied the participant’s appeal 177 days after receipt and, after inviting and receiving additional information from the participant, reaffirmed the denial 279 days after the appeal was filed. The participant filed suit, and made the same argument that had worked in Jebian: because the plan administrator had exceeded the permissible time limit in denying the appeal, the appeal should be “deemed denied” and the administrator’s decision subject to the more rigorous de novo review by the court.

The district court was persuaded by this argument, and ultimately awarded the participant benefits. On appeal, however, the Ninth Circuit noted an important distinction from the Jebian case. In Jebian, both the applicable regulation and the plan document stated that a claim was “deemed denied” if no decision was made within the applicable time limit. In Gatti, however, the plan contained no such language, and the participant relied only on the language in the Labor regulations. This distinction, the court held, made a big difference: the “deemed denied” language in the regulation merely meant that the participant had a right to proceed to court once the time limit had expired with no decision from the administrator (as the participant in Jebian had done). In Gatti, the participant had continued to participate in the appeal process even after the deadline had expired and, absent any plan language mandating a different result, the court concluded that the administrator in fact exercised its discretion when it finally decided the appeal on the 279th day, and that the “deemed denial” principle did not apply.

The court then went on to consider the question left open in Jebian — whether mere procedural violations necessarily affect the standard of review. Twenty years earlier, in a case in which the court concluded that the plan administrator had not even attempted to comply with ERISA’s procedural requirements, the court had announced that procedural violations could affect the standard of review when they rise to such a level as to “alter the substantive relationship” between the plan and participant. Blau v. Del Monte Corp., 748 F.2d 1348, 1354 (9th Cir. 1984). In Gatti, the court reaffirmed its holding in Blau, and stated that it would be “inconsistent” with Blau to hold that mere procedural violations that do not rise to the level set forth in Blau nevertheless alter the standard of review. Thus, the court held, as a “corollary to Blau … procedural violations of ERISA do not alter the standard of review unless those violations are so flagrant as to alter the substantive relationship between the employer and employee, thereby causing the beneficiary substantive harm.” Gatti, 2005 WL 1705509 at *5.&sub2;

The court then remanded the case to the district court for a determination of whether the plan administrator’s procedural violations rose to the necessary level to alter the standard of review — a highly unwelcome result for the plan participant.

Of course, these recent rulings do not mean that plan administrators should not make every effort to comply with the procedural requirements contained in both the Labor regulations and their own plan documents. Complying with the procedural requirements is the law, and it affords the plan’s decision the best chance of obtaining deferential review should the matter wind up in litigation. Plan administrators can take at least some comfort from these recent cases, however, suggesting that not every technical slip-up in the course of deciding claims and appeals will necessarily result in a court tossing their determinations out the window and reviewing the claims de novo.

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1. Under deferential review — sometimes referred to as the “arbitrary and capricious” or “abuse of discretion” standard — a court will not overturn a plan administrator’s decision if the court can conclude that the administrator’s decision was reasonable, even if the court concludes that it would have decided the issue differently if it had been in the administrator’s shoes. Under de novo review, the court decides the claim anew, giving no deference to the administrator’s decision.

2. In an amended Gatti opinion filed on July 22, 2005, the court noted that new Labor regulations that first became effective in 2002 provide “that if plan administrators fail ‘to establish or follow claims procedures consistent with [the new regulation], a claimant shall be deemed to have exhausted the administrative remedies available under the plan and shall be entitled to pursue any available remedies … on the basis that the plan has failed to provide a reasonable claims procedure …,’ including suing for benefits.” Gatti, 2005 WL 1705509 at *2 n.1 (quoting 29 C.F.R. § 2560.503–1(l)). The court then went on to state that it was not addressing the question of whether, under the new regulation, claimants who can establish a failure to comply with the claims procedures established by the new ERISA regulations are entitled to de novo consideration of their claims. Id.