Halo v. Yale Health Plan, Director of Benefits & Records Yale Univ.

• Decision Date: 12 April 2016
• Docket Number: No. 14–4055.,14–4055.
• Citation: 819 F.3d 42
• Parties: Tiffany L. HALO, Plaintiff–Appellant, v. YALE HEALTH PLAN, DIRECTOR OF BENEFITS & RECORDS YALE UNIVERSITY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Second Circuit

819 F.3d 42

Tiffany L. HALO, Plaintiff–Appellant,
v.
YALE HEALTH PLAN, DIRECTOR OF BENEFITS & RECORDS YALE UNIVERSITY, Defendant–Appellee.

No. 14–4055.

United States Court of Appeals, Second Circuit.

Argued: Sept. 11, 2015.
Decided: April 12, 2016.

819 F.3d 45

Tiffany L. Halo, pro se, Denville, NJ.

Patrick Matthew Noonan (Anthony Dexter Sutton, on the brief), Donahue, Durham & Noonan, P.C., Guilford, CT, for Defendant–Appellee.

Before: KATZMANN, Chief Judge, LYNCH, Circuit Judge, and ARTERTON, District Judge.^*

KATZMANN, Chief Judge:

Under Sections 503 and 505 of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1133, 1135, Congress empowered the Department of Labor to issue rules and regulations governing claims procedures for employee benefit plans. This case calls upon us to interpret an agency regulation in the context of the regulation's purpose, as well as the purpose of the regulation's authorizing statute, as we address some of the consequences that follow from a plan's failure to comply with the Department's claims-procedure regulation, 29 C.F.R. § 2560.503–1.

The United States District Court for the District of Connecticut (Bryant, J. ) held that, when exercising discretionary authority to deny a claim for benefits, a plan's failure to establish or follow reasonable claims procedures in accordance with the regulation entitles the claimant to de novo review of the claim in federal court, unless the plan "substantially complied" with the regulation, in which case an arbitrary and capricious standard applies to the federal court's review of the claim. The district court further held that a plan's failure to follow the Department's regulation results in unspecified civil penalties.

We respectfully disagree with the district court's holdings in light of the careful balance struck by the Department's regulation. Specifically, we hold that, when denying a claim for benefits, a plan's failure to comply with the Department of Labor's claims-procedure regulation, 29 C.F.R. § 2560.503–1, will result in that claim being reviewed de novo in federal court, unless the plan has otherwise established procedures in full conformity with the regulation and can show that its failure to comply with the regulation in the processing of a particular claim was inadvertent and harmless. We further hold that civil penalties are not available to a participant or beneficiary for a plan's failure to comply with the claims-procedure regulation. Finally, we hold that a plan's failure to comply with the claims-procedure regulation may, in the district court's discretion, constitute good cause warranting the introduction of additional evidence outside the administrative record. Accordingly,

819 F.3d 46

we VACATE and REMAND for further proceedings consistent with this opinion.

Factual Background and Procedural History

A full discussion of the factual background of this case is set forth in the district court's memorandum of decision. See Halo v. Yale Health Plan (Halo II ), 49 F.Supp.3d 240, 244–53 (D.Conn.2014). Because the district court's conclusions were premised on the incorrect standard ("substantial compliance"), the district court did not make factual findings that would permit us to assess whether Defendant–Appellee Yale Health Plan, Director of Benefits & Records Yale University ("Yale Health Plan") established procedures in full conformity with the regulation but inadvertently and harmlessly failed to comply with it in the processing of a particular claim. We therefore do not delve deeply into the specific facts of this case, because we leave it to the district court to apply the correct standard in the first instance on remand. We summarize the factual background and procedural history merely to provide context for the legal discussion to follow.

Plaintiff–Appellant Tiffany L. Halo was a student at Yale University and an insured under the Yale Health Plan. When Halo began experiencing serious problems with her left eye in 2008, she visited and underwent surgery with doctors within the Yale Health Plan network. Dissatisfied with the results of her treatment, she returned to her parents' home, where she eventually underwent further surgery with doctors who were not in the Plan's network and whose treatment therefore was covered only if the condition treated constituted an emergency or urgent condition or if the treatment was approved in advance by the Plan's Care Coordination Department.

Yale Health Plan rejected Halo's claims for coverage. Appearing pro se, Halo filed a civil action against Yale Health Plan alleging, among other things, that it violated the Department of Labor's claims-procedure regulation when it denied a number of her claims for benefits. Halo contests both the timing and content of the explanations concerning Yale Health Plan's denials. For example, the Department of Labor's regulations require that notification of an adverse benefit determination "shall set forth, in a manner calculated to be understood by the claimant" a number of specific pieces of information, including: (1) "The specific reason or reasons for the adverse determination;" (2) "[r]eference to the specific plan provisions on which the determination is based;" (3) "[a] description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary;" and (4) "[a] description of the plan's review procedures and the time limits applicable to such procedures, including a statement of the claimant's right to bring a civil action under section 502(a) of the Act following an adverse benefit determination on review." 29 C.F.R. §§ 2560.503–1(g)(i)–(iv). Yet, in at least one notification, the only explanation Yale Health Plan provided to Halo was "SERVICE NOT AUTHORIZED." App. 160.

On August 19, 2011, Yale Health Plan filed a "motion for judgment on the administrative record." The district court granted the motion and Halo appealed. On Halo's first appeal, we held that the motion should have been treated as a motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure, which required that Halo should have received "notice ‘of the consequences of failing to respond to [the] motion for summary judgment.’ " Halo v. Yale Health Plan (Halo

819 F.3d 47

I ), 546 Fed.Appx. 2, 3 (2d Cir.2013) (quoting Vital v. Interfaith Med. Ctr., 168 F.3d 615, 620 (2d Cir.1999) ). Because we concluded that "Halo's apparent ignorance of her Rule 56 burden may have hampered her ability to oppose Yale[ Health Plan's] summary judgment motion," we vacated the judgment. Id. at 4.

In vacating the judgment, we expressly declined to reach Halo's argument that "civil penalties are available for violations of 29 C.F.R. § 2560.503–1" or "that, in light of Yale[ Health Plan's] alleged violations of ERISA regulations, the court should review Halo's ERISA claims de novo. " Id. at 4–5. We instead left it to the district court to address these issues in the first instance. Id. at 5.

On remand, and after Yale Health Plan again moved for summary judgment, the district court concluded that "the plan clearly reserves discretion for the plan administrator" and that, "[o]nce it is clear that the administrator has discretionary authority, the standard of review ordinarily shifts from de novo to an arbitrary and capricious standard of review." Halo II, 49 F.Supp.3d at 255–56. The district court correctly recognized, however, that, "under certain circumstances, a plan administrator's failure to comply with the letter of the claims procedures outlined in ERISA requires courts to eschew the more deferential arbitrary and capricious review normally applied to an administrator's discretionary decisions in favor of a more searching de novo review." Id. at 256.

The district court nonetheless applied the so-called "substantial compliance doctrine," which excuses failures to comply with the Department's claims-procedure regulation if the record otherwise shows that the plan "substantially complied" with the regulation's requirements. As the district court explained, a plan substantially complies with the regulation "if the administrator made efforts to keep the beneficiary apprised of the claim assessment process and delivered reasonably timely and detailed decisions, which indicate that the administrator validly exercised its discretion." Id. at 256–57. Applying the substantial-compliance doctrine, the district court concluded that, "while YHP's communications of its claim denials were not ideal (and in some instances failed to comply with ERISA regulations), the substance and timing of its denials of Halo's claims were sufficient to indicate that YHP had exercised its discretion, such that [the district court] review[ed] its denials of Halo's claims under an arbitrary and capricious standard." Id. at 257.

Despite the district court's conclusion that Yale Health Plan substantially complied with the Department of Labor's claims-procedure regulation and that it was therefore entitled to have Halo's claims reviewed under the more deferential arbitrary and capricious standard of review, the district court went on to hold that civil penalties are available to a...