Exhaustion of Claims Procedures Is Not Always
Required
M. Travis DeHaven
Gary L. Hodgson
Troutman Sanders LLP
Atlanta, Georgia
In the case Watts v. BellSouth Telecomm., Inc., 316 F.3d 1203 (11th Cir. 2003), the U.S. Court of Appeals for the Eleventh Circuit ruled that an employee benefit plan participant did not have to exhaust a plan’s claims procedures before filing a suit for benefits because the plan’s summary plan description (SPD) could reasonably be read as making exhaustion optional.
Ordinarily, under the court imposed exhaustion requirement, if a participant in an employee benefit plan governed by the Employee Retirement Income Security Act (ERISA) fails to exhaust a plan’s claims procedures, the participant will be barred from pursuing his or her claim in federal court. However, in the Watts case, the Eleventh Circuit has created an exception to the exhaustion requirement. Specifically, in this case, an ERISA plan participant argued that even though she failed to timely appeal her claim under the plan’s claim procedures, the court should excuse the exhaustion requirement because she read the SPD as giving her the option of continuing to pursue her claim administratively (by taking her second appeal), or filing a lawsuit, or both. In support of this argument, the participant cited to the SPD’s “Appeals Procedure” section which stated that a claimant who “wishes to appeal” a claim denial must submit the appeal to the plan in writing within 60 days. The participant also cited to the SPD’s “Your Rights Under ERISA” section which provided that if a participant has a claim for benefits which is denied or ignored in whole or in part, he or she “may file suit” in a state or federal court.
In response to the participant’s argument, the Eleventh Circuit said that the “claim ought not to be barred by the doctrine of exhaustion if the reason the claimant failed to exhaust is that she reasonably believed, based upon what the summary plan description said, that she was not required to exhaust her administrative remedies before filing a lawsuit.” Whether a participant’s reading of the SPD is reasonable should be “judged from the perspective of the average plan participant,” the court said. In that regard, the court said that the SPD’s use of the phrases if you “wish to appeal” and “you may file suit” created an impression that the plan’s claims procedures were voluntary, rather than mandatory. In addition, the court noted that nowhere in the SPD did it specifically require exhaustion of the plan’s claims procedures before filing a suit for benefits. The court also noted that ERISA plans can easily remedy the problem arising in this case by adding language to the SPD which clearly makes the timely exercise of administrative appeal rights and the denial of an appeal a precondition to filing suit in court.
As a result of this case, ERISA plan sponsors should review their SPDs and make any necessary revisions to make sure that administrative exhaustion is specifically required before a participant can file suit in court.