Ninth Circuit: No ERISA Penalties for Violation of Claims Regulations | Practical Law

Ninth Circuit: No ERISA Penalties for Violation of Claims Regulations | Practical Law

Joining the majority of circuits that have addressed the issue, the Ninth Circuit has held that a failure to provide relevant documents under the Department of Labor's (DOL's) claims regulations does not give rise to statutory penalties under the Employee Retirement Income Security Act (ERISA).

Ninth Circuit: No ERISA Penalties for Violation of Claims Regulations

Practical Law Legal Update w-002-8859 (Approx. 4 pages)

Ninth Circuit: No ERISA Penalties for Violation of Claims Regulations

by Practical Law Employee Benefits & Executive Compensation
Published on 27 Jul 2016USA (National/Federal)
Joining the majority of circuits that have addressed the issue, the Ninth Circuit has held that a failure to provide relevant documents under the Department of Labor's (DOL's) claims regulations does not give rise to statutory penalties under the Employee Retirement Income Security Act (ERISA).
Joining the majority of circuits that have addressed the issue, the Ninth Circuit has held that a failure to provide relevant documents under the DOL's claims regulations does not give rise to statutory penalties under ERISA (Lee v. ING Groep, N.V., (9th Cir. July 25, 2016)).

Background

The employee in this case, a participant in his employer's ERISA-governed long-term disability plan, applied for benefits under the plan. Although the employee initially received disability benefits, the benefits were later terminated after the plan's claims administrator concluded that the employee had not provided sufficient evidence of continued disability. In response, the employee's attorney wrote a letter to the plan administrator requesting copies of relevant communications, including email communications involving the claim for disability benefits. In a second letter to the plan's claims administrator, the employee's attorney requested all documents relevant to the employee's claim.
Well over a year-and-a-half later, the plan administrator produced the requested emails. In addition, more than three years from the date of the attorney's letter, the plan administrator produced a copy of the plan document.
In the resulting litigation, the employee sought (among other remedies) statutory penalties under ERISA Section 502(c)(1) from the plan administrator for failing to timely produce the requested documents. (Under ERISA Section 502(c)(1), an ERISA plan administrator is subject to penalties of up to $110 per day for failing to produce certain plan-related documents within 30 days of a participant's or beneficiary's written request (29 U.S.C. § 1132(c)(1)). See Practice Note, ERISA Litigation: Penalties for Failing to Provide Documents and ERISA Litigation Toolkit.
Ruling for the employee, the district court awarded $27,475 in statutory penalties. The employee appealed other aspects of the district court's decision to the Ninth Circuit, and the plan administrator cross-appealed on the penalties issue. Specifically, the plan administrator argued on appeal that failing to produce email correspondence could not support the imposition of statutory penalties under ERISA Section 502(c)(1).

Penalties Analysis

The Ninth Circuit had little difficulty affirming the district court's decision to impose penalties for the plan administrator's failure to timely produce the controlling plan document. However, the Ninth Circuit reversed the district court's decision to impose penalties for the plan administrator's failure to timely produce the requested emails. The Ninth Circuit rejected the argument that statutory penalties regarding the emails were appropriate because a provision of the DOL claims procedure regulations requires benefit plans to provide claimants, on request, copies of certain documents relevant to an individual's claim for benefits (29 C.F.R. § 2560.503-1(h)(2)(iii); see Claims Procedure Requirements for Disability Claims Checklist). In contrast, the plan administrator argued that a failure to produce relevant documents under the claims regulations could not give rise to ERISA statutory penalties because:
  • The claims regulations impose requirements on benefit plans, not plan administrators.
  • ERISA Section 502(c)(1) only applies to documents that plan administrators are required to produce.
The Ninth Circuit observed that seven other circuit courts of appeals have agreed with the plan administrator's position (see Legal Update, Second Circuit: No ERISA Penalties for Violation of Claims Regulations). Also, the court noted that a prior Ninth Circuit decision (Sgro v. Danone Waters of N.A., Inc., 532 F.3d 940 (9th Cir. 2008)), in which the court had apparently assumed that statutory penalties could be imposed for failure to produce relevant documents under the claims regulations, was non-binding dicta (and not an express holding).
As a result, the Ninth Circuit held that a failure to follow the claims procedures imposed on benefit plans, as outlined in 29 C.F.R. § 2560.503-1(h)(2)(iii), does not give rise to ERISA Section 502(c)(1) penalties. According to the court, plans and plan administrators are separate entities (and separately defined) under ERISA. Because the cited claims regulation does not impose requirements on plan administrators, it cannot form the basis for ERISA statutory penalties. The Ninth Circuit vacated the district court's award (also noting an inconsistency in the district court's underlying award calculation), and remanded to the district court to assess penalties based only on the failure to timely produce the plan document.

Practical Impact

Plan administrators in the Ninth Circuit will welcome the court's clarification that ERISA statutory penalties are unavailable for a failure to provide relevant documents under the claims regulations – particularly because the court dispensed with a prior decision that seemed to suggest that penalties against a plan administrator were available in this context.
As the facts in this case illustrate, however, ERISA statutory penalties (even excluding the portion of the award reflecting the email communications) can add up quickly, and the courts have discretion to award these penalties based on a host of factors that include, as in this case, whether the failure to produce was intentional or inadvertent (see Practice Note, ERISA Litigation: Penalties for Failing to Provide Documents: Factors Influencing a Court's Discretion in Awarding Penalties). As a result, plan administrators need to be vigilant in responding to document requests that fall within the scope of ERISA Section 502(c)(1) – especially as to claims that may wind up in court.