Gatti v. Reliance Standard Life Ins. Co.

• Decision Date: 22 July 2005
• Docket Number: No. 03-16183.,No. 03-15562.,03-15562.,03-16183.
• Citation: 415 F.3d 978
• Parties: Terri GATTI, Plaintiff-Appellee, v. RELIANCE STANDARD LIFE INSURANCE COMPANY, Defendant-Appellant. Terri Gatti, Plaintiff-Appellee, v. Reliance Standard Life Insurance Company, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

415 F.3d 978

Terri GATTI, Plaintiff-Appellee, v. RELIANCE STANDARD LIFE INSURANCE COMPANY, Defendant-Appellant.

Terri Gatti, Plaintiff-Appellee, v. Reliance Standard Life Insurance Company, Defendant-Appellant.

No. 03-15562.

No. 03-16183.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 6, 2004.

Submission Deferred October 8, 2004.

Resubmitted May 31, 2005.

Filed May 31, 2005.

Amended Opinion and Concurrence Filed July 22, 2005.

COPYRIGHT MATERIAL OMITTED

Joshua Bachrach, Rawle & Henderson, LLP, Philadelphia, PA, for the appellant.

Barry Kirschner, Waterfall, Economidis, Caldwell, Hanshaw & Villamana, P.C., Tuscon, AZ, for the appellee.

Appeal from the United States District Court for the District of Arizona, Frank Zapata, District Judge, Presiding. D.C. No. CV-01-00175-FRZ.

Before: RYMER, TALLMAN, and BEA, Circuit Judges.

AMENDED OPINION

TALLMAN, Circuit Judge.

Reliance Standard Life Insurance Company ("Reliance") appeals the district court's summary judgment in favor of Terri Gatti in her action brought under the Employee Retirement Income Security Act ("ERISA") for reinstatement of long term disability benefits. The district court reviewed Reliance's decision to terminate Gatti's benefits de novo, because it interpreted an ERISA regulation as placing a temporal limitation on the administrator's discretion and because it found Reliance to have a serious conflict of interest. The district court erred in applying de novo review. We reverse and remand.

I

Appellant Reliance, which provided long term disability coverage for employees of Paine Webber Group, approved appellee Gatti for long term disability benefits effective May 24, 1993, based on complications related to Hepatitis B. Almost seven years later, in April 2000, Reliance concluded that Gatti was no longer suffering from complications related to Hepatitis B, but that her disability was caused by a mental disorder. Reliance apparently based this determination on tests indicating that Gatti's Hepatitis B was inactive as of 1997, and on physicians' reports that she suffered from bipolar disorder and chronic fatigue syndrome. Disability benefits for mental illness were limited to twenty-four months under Gatti's policy, so Reliance determined that Gatti had already received the maximum amount of benefits to which she was entitled and discontinued her disability payments.

Gatti administratively appealed Reliance's decision. Reliance then had Dr. Stephen Feagin review Gatti's medical records. Based on his review, and without actually examining Gatti, Dr. Feagin concluded that any disability suffered by Gatti was caused by her psychiatric issues. On October 27, 2000, 177 days after it received Gatti's request for administrative review, Reliance reaffirmed its decision to discontinue benefits.

Following that decision, Reliance gave Gatti an additional opportunity to present "any additional medical evidence which she believes might allow [Reliance] to reinstate her benefits." Gatti did present new evidence, including a December 7, 2000, letter from Dr. Nicholas H. Rice stating that a new HBV DNA test had been performed on Gatti which confirmed that she still had Hepatitis B. On February 6, 2001, 279 days after it received Gatti's request for administrative review, Reliance concluded that the additional submissions were insufficient to warrant reversing its decision to discontinue Gatti's benefits.

Gatti filed a complaint against Reliance, and the district court ruled for her on summary judgment. The court reviewed Reliance's decision to terminate benefits de novo because the court reasoned that the termination of Gatti's benefits was not an act of discretion as Gatti's claim was "deemed denied" when Reliance violated the time deadlines for processing administrative appeals established in the ERISA regulations. The court also justified de novo review with its finding that Reliance had an actual conflict of interest, demonstrated by Reliance's failure to follow the treating physician rule. The district court concluded that Gatti was entitled to benefits based on the treating physician rule.

II

We review de novo whether the district court applied the appropriate standard of review. See Alford v. DCH Found., 311 F.3d 955, 957 (9th Cir.2002).

District courts review a decision to deny or terminate benefits under an ERISA plan "under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989). When the plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits, that determination is reviewed for abuse of discretion. Taft v. Equitable Life Assurance Soc'y, 9 F.3d 1469, 1471 (9th Cir.1993); see also Firestone, 489 U.S. at 114-15, 109 S.Ct. 948.

A

The regulations implementing ERISA establish minimum requirements for employee benefit plan procedures pertaining to beneficiary claims. 29 C.F.R. § 2560.503-1 (1998). These regulations include a sixty-day time limit for making a decision on review, which may, under certain circumstances, be extended to 120 days. 29 C.F.R. § 2560.503-1(h). If a decision has not been made within these time limits, the claim is deemed denied on review. 29 C.F.R. § 2560.503-1(h)(4).¹

Relying upon Jebian v. Hewlett Packard Co., 310 F.3d 1173 (9th Cir.2002),² the district court found that "because Reliance failed to comply with the time limitations in 29 C.F.R. § 2560.503-1(h) when it decided Gatti's request for review, its decision was not an exercise of discretion." We conclude that Jebian does not control the issue presented here, and hold that violations of the time limits established in 29 C.F.R. § 2560.503-1(h) are insufficient to alter the standard of review.

The Jebian panel was presented with, but did not decide, the issue of whether violating the ERISA regulation time limits alters the standard of review. 349 F.3d at 1103. Factually, Jebian was very similar to this case—both involve an ERISA beneficiary's claim that was denied more than 120 days after the date of appeal. 349 F.3d at 1102. However, one factual distinction is critical: the language of the plan being administered in Jebian contained the same time limits as are found in the ERISA regulation, whereas Gatti's plan with Reliance did not include time limits. Id. at 1103-04. Gatti relies on the ERISA regulation alone to establish that her claim was "deemed denied" and not denied as an act of discretion.

The Jebian opinion discusses the time limits established by the plan and those imposed by regulation in tandem, but the court's ultimate holding was based solely on the time limitation language in the plan. Noting that "[w]e are just as bound by the Plan language deeming denial in the event that time limits are exceeded as we are bound by the Plan language that grants discretion to the Plan administrator[,]" the Jebian court held that "we will not defer when a decision is, under the Plan, necessarily the mechanical result of a time expiration rather than an exercise of discretion." 349 F.3d at 1104-05; see also id. at 1106 n. 6 (distinguishing Judge Tashima's dissent on the basis that the majority opinion relied on the language of the plan). The Jebian decision recognizes that there will be cases where benefits decisions are made in violation of the regulations alone, and explicitly leaves this issue open. Id. at 1105-06.

We reject Gatti's suggestion that once a benefits administrator has violated the regulation's time limitation, the "deemed denied" language operates to cut off the administrator's discretion, making de novo review appropriate.³ Instead, we read the "deemed denied" language to provide beneficiaries with a "final decision" from which to appeal if the administrator has not made a decision within the timelines established in the regulation. Because a claimant must exhaust her plan's administrative review procedures before she may bring suit in federal court, Amato v. Bernard, 618 F.2d 559, 566-68 (9th Cir. 1980), a mechanism is necessary to allow claimants access to the courts in the event that their plan never makes a decision. Thus, the "deemed denied" language gives claimants the ability to access the courts if the administrator does not exercise its discretion within a reasonable time (as established by the regulations).⁴

Significantly, this is the way the U.S. Supreme Court, Stevens J., read this regulatory provision:

This provision [29 C.F.R. § 2560.503(1)(h)(4)] therefore enables a claimant to bring a civil action to have the merits of his application determined, just as he may bring an action to challenge an outright denial of benefits.

Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 144, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985) (reversing a Ninth Circuit decision that held that the beneficiary had a cause of action against the fiduciary administering her benefits plan because it took the plan 132 days to respond to the beneficiary's appeal, which was ultimately successful).

This interpretation is also consistent with the way "deemed denied" is used in other parts of this ERISA regulation. For example, 29 C.F.R. § 2560.503-1(e)(2) states in relevant part:

If notice of the denial of a claim is not furnished in accordance with paragraph (e)(1) of this section within a reasonable period of time, the claim shall be deemed denied and the claimant shall be permitted to proceed to the review stage....

29 C.F.R. § 2560.503-1(e)(2).⁵ We have previously found that the purpose of this language was "to aid claimants in avoiding the obstacles a plan may place in their paths to the appeals board." White v. Jacobs Eng'g Group, 896 F.2d 344, 351 (9th Cir.1989).

Further support for interpreting "deemed denied" to allow claimants to seek judicial review, rather than...