On August 18, 2011, the US Court of Appeals for the 7th Circuit issued an opinion in Kough v. Teamsters' Local 301 Pension Plan, reversing the district court's holding that the plaintiff was not entitled to benefits under an ERISA plan. The key issue in the case was whether the plan's letter denying benefits was in compliance with the notice requirements of ERISA and the DOL claims regulations. The order also addressed the procedural remedy for a reversal of a district court's denial of benefits and the proper test for an award of attorneys' fees in an ERISA action.

The plaintiff, Kough, was a union employee who requested disability benefits under his union ERISA plan following a heart attack suffered in 2005. In response, the plan issued a brief letter notifying Kough that his request had been denied because he had become permanently disabled in 1998 while working for a different employer. The district court granted summary judgment for the defendant, finding that the notice was in substantial compliance with ERISA. The court also denied Kough attorney's fees on the ground that he was not the prevailing party (see Practice Note, ERISA Litigation: Attorney's Fees).

The 7th Circuit reversed the district court's ruling, concluding that the denial notice was procedurally inadequate and not in substantial compliance with the ERISA notice requirements. Specifically, the court held that the notice was inadequate for failing to:

Most problematic for the court was that the notice did not state that the plan required additional evidence from the Social Security Administration that Kough's disability from 2005 forward was related to his 2005 heart attack, which was information only requested during the course of litigation. Although it acknowledged that Kough's claim may have seemed futile to the plan, the court stated that apparent futility does not relieve a plan of its obligation to comply substantially with the requirements of ERISA.

However, the court stopped short of awarding benefits to Kough. Observing that it was not clear from the record that Kough was entitled to benefits, the court held the proper remedy for the procedural violation at issue was to remand to the plan administrator for a de novo determination of whether Kough qualifies for disability benefits (see Practice Note, ERISA Litigation: Standard of Review: De Novo Standard of Review).

The court also reversed the district court's decision to not award attorneys' fees to Kough in light of the Supreme Court's Hardt decision (Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149 (2010)). The court noted that Hardt overruled the "prevailing party" test applied by the district court and replaced it with a discretionary power to award costs and fees to a party that has achieved "some degree of success on the merits." Given the court's conclusion concerning the plan's failure to comply with ERISA requirements and Kough's success in obtaining several months of benefits from the plan during an earlier stage of the litigation, the court remanded the case to the district court for a determination of whether attorneys' fees were due to Kough.

Plan administrators must ensure that denial notices comply with the requirements of ERISA and the DOL's claims regulations. The 7th Circuit's decision indicates that the futility of a claim will not relieve a plan of this obligation. For more information, see ERISA Litigation Toolkit.