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The 2d U.S. Circuit Court of Appeals doesn’t recognize a “substantial compliance” exception for benefit plan administrators who fail to meet deadlines denying disability benefits under the 1974 Employee Retirement Security Act. Nichols v. The Prudential Insurance Co. of America, No. 04-1445-cv. The circuit said that the “plain language” of regulations setting deadlines under the act “precludes the judicial creation of a ‘substantial compliance’ doctrine.” The case involved Prudential Insurance Co.’s missing the deadline for completing its review of a denial of long-term benefits to plaintiff Cecilia Nichols. Nichols’ claim was dismissed without prejudice by Judge Victor Marrero of New York’s southern district, who found that she had failed to exhaust her administrative remedies. On behalf of the 2d Circuit panel, Judge Rosemary Pooler ruled against Prudential’s argument that Marrero’s decision was final and, therefore, reviewable by the circuit. Nichols had submitted a claim in November 1999 based on medical conditions that included nausea, dizziness and depression. She was paid short-term benefits by Prudential until April 29, 2000, and then received long-term benefits. In December 2001, Prudential informed Nichols that she would no longer receive benefits as of April 29, 2002, because she was no longer totally disabled and her disability was based, in part, on a mental disorder. Pooler wrote that 29 C.F.R. 2560.503-1(h)(1)(i) requires that a plan administrator’s review of a denial of benefits must be made within 60 days of the request for such a review. The deadline can be stretched to 120 days under special circumstances. If there is no decision by the deadline, the claim for benefits is deemed denied on review and the claimant is considered to have exhausted her administrative remedies. Prudential, however, first communicated with Nichols about her appeal 67 days after she sent the insurer a letter requesting an appeal of its denial; it waited until 81 days had elapsed before telling her that she needed an independent medical exam. And 105 days later, the company told her it could not proceed with the exam without additional medical records. As of the date Nichols filed suit, 197 days had elapsed and Prudential had yet to give her a formal decision on her claim. “The regulation requires a decision on the appeal within 60 days, not just acknowledgment of the appeal,” Pooler wrote. “Even if we gave Prudential the benefit of the 60-day extension, its claim that it complied with the regulation must fail.” That left the central question: whether Prudential’s failure to meet the deadline “may be excused by its good-faith efforts to resolve the appeal subsequent to the deadline.” The “substantial compliance” doctrine that the district court relied on, according to Pooler, only “forgives technical noncompliance for purposes of review of a plan administrator’s discretionary decision,” she said, which is a “very different question” than the one posed by Nichols: “whether substantial compliance can block or delay a plaintiff’s access to the federal courts.” Allowing substantial compliance to delay the exhaustion of administrative appeals, and thus the onset of the right to sue, Pooler said, “would permit plan administrators to indefinitely tie up claimants, who are often in immediate need of benefits, with ongoing requests for information,” a result that would render the plain language of the regulation “a nullity.” The 2d Circuit, along with the majority of circuits, Pooler said, holds that “absent substantial compliance with the deadlines, de novo review applies on the grounds that inaction is not a valid exercise of discretion and leaves the court without any decision or application of exercise to which to defer.” The panel then remanded the case to the lower court for de novo review of Nichols’ entitlement to benefits under the plan.

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