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The 2nd U.S. Circuit Court of Appeals does not recognize a “substantial compliance” exception for benefit plan administrators who fail to meet deadlines for formally denying disability benefits under the Employment Retirement Security Act of 1974. In Nichols v. The Prudential Insurance Co. of America, 04-1445-cv, the circuit said that the “plain language” of regulations setting deadlines under the act (ERISA) “precludes the judicial creation of a ‘substantial compliance’ doctrine.” In Nichols, a case where Prudential Insurance Co. missed the deadline for completing its review of a denial of long-term benefits for plaintiff Cecilia Nichols, the circuit also held that the “lack of discretion vested in the plan administrator, or alternatively, failure to exercise any such discretion, requires de novo review of the denial of benefits.” The issue came to the 2nd Circuit after Nichols’ case was dismissed without prejudice in February by Southern District Judge Victor Marrero. He found that Nichols had failed to exhaust her administrative remedies — a condition precedent to filing suit challenging the denial of benefits. First, a 2nd Circuit panel of Judges Rosemary Pooler, Jon Newman and Robert Katzmann decided against an argument made by Prudential that the decision of Marrero was in fact a final, appealable decision and was therefore reviewable by the circuit. Nichols had submitted a claim in November 1999 based on medical conditions that included nausea, dizziness, depression and disorientation. She was paid short-term benefits by Prudential until April 29, 2000, and then moved to 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. The problem for Prudential was that it 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 before telling her 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,” she said. ‘SUBSTANTIAL COMPLIANCE’ While the language in the regulation is unambiguous, she said, the district court relied on a 10th Circuit case and district court cases that have discussed the doctrine of “substantial compliance.” But those cases, Pooler said, “stand only for the proposition that a plan administrator who 1) substantially complied with the deadlines and 2) eventually exercised its discretion to deny benefits by the time of the suit, should not be penalized by automatic reversal of the administrator’s decision or withholding of judicial deference.” Pooler said that it “is true that many of our sister Circuits, in considering other requirements” of the regulation, “in particular the notice of reasons for a denial and the right to appeal, have held that a plan administrator’s decision made in substantial compliance with the regulation can be upheld.” The doctrine, therefore “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.” Turning to the standard of review, Pooler said other circuits have split on the question of whether a “deemed denied” claim is always entitled to de novo review: an exacting standard of review by which a court gives little or no deference to the original decisionmaker. The majority of circuits, she said, have held 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.” While the minority of circuits have held that a “deemed denied” claim is still entitled to a deferential review, she said, the 2nd Circuit agreed with the majority. The panel then vacated the dismissal by the lower court and remanded the case for de novo review of Nichols’ entitlement to benefits under the plan. Christopher P. Foley and Patrick F. Foley of McCormick, Dunne & Foley represented Nichols. David A. Brooks of Cuyler Burk represented Prudential. Mary Ellen Signorille and Melvin Radowitz of the American Association of Retired Persons filed amicus briefs.

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