Schorsch v. Reliance Standard Life Insurance

In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3524
D EBORAH S CHORSCH,
Plaintiff-Appellant,
v.
R ELIANCE S TANDARD L IFE INSURANCE C O .,
an Illinois Corporation,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 1:09-cv-03740—Robert W. Gettleman, Judge.
A RGUED S EPTEMBER 8, 2011—D ECIDED A UGUST 28, 2012
Before M ANION, R OVNER, and T INDER, Circuit Judges.
T INDER, Circuit Judge. The Employee Retirement
Income Security Act of 1974 (ERISA) allows beneficiaries
of plans governed by the statute to bring civil actions
to recover benefits that are due to them. 29 U.S.C.
§ 1132(a)(1)(B). But in enacting ERISA, Congress also
mandated internal claim review procedures. 29 U.S.C.
§ 1133(2). Recognizing that Congress gave the primary
2 No. 10-3524
responsibility for processing claims to ERISA plans as
opposed to federal courts, we have held that district
courts have discretion to require the exhaustion of ad-
ministrative remedies as a precondition to such suits.
See Powell v. A.T. & T. Commc’ns, Inc., 938 F.2d 823, 826
(7th Cir. 1991). Yet there are exceptions that may excuse
a failure to exhaust. We consider here whether the
content of a termination notice, specifically the absence
of particular information, caused the beneficiary’s
failure to exhaust and whether the defendant is estopped
from taking advantage of that failure. The district court
found that the beneficiary offered no evidence of rea-
sonable reliance on the absent information and that
even if the notice was deficient, the alleged deficiencies
were not material. Finding no abuse of discretion,
we affirm.
I. Background
Deborah Schorsch enrolled in September 1991 in a long-
term group disability insurance plan provided through
her employer United Conveyor Corporation. Reliance
Standard Life Insurance Company (“Reliance”) provided
coverage for the plan. According to the summary plan
description, United Conveyor was the plan sponsor and
administrator. Yet the terms of the policy issued by
Reliance governed the plan’s administration, and United
Conveyor delegated authority to determine eligibility
for benefits to Reliance as the claims administrator. The
policy did not give Reliance discretionary authority
to determine benefit eligibility or construe plan terms.
No. 10-3524 3
For unknown reasons, United Conveyor apparently
never provided Schorsch with the summary plan descrip-
tion or any document explaining that ERISA governed
the plan.
On August 1, 1992, a car struck the passenger side of
the vehicle in which Schorsch was a passenger. Schorsch
suffered a contusion and spinal cord damage, which
caused her disability. Her symptoms include chronic
pain syndrome, restricted movement, incontinence, an
inability to concentrate, and fatigue. Schorsch also
suffers from the side effects of her pain medicine. United
Conveyor submitted a claim to Reliance for long-term
disability benefits on Schorsch’s behalf. Reliance ap-
proved the claim and Schorsch began receiving long-
term disability benefits on January 29, 1993. The plan
provides that for the first 60 months, “total disability”
meant that Schorsch could not perform the material
duties of her regular occupation. After 60 months, “total
disability” meant that Schorsch could not perform the
material duties of any occupation as reasonably allowed
by her education, training, or experience. On May 16,
1998, Reliance notified Schorsch that her condition
satisfied the more stringent definition of total disability.
Reliance told her she was eligible to receive disability
benefits until she reached the age of 65 on January 27,
2018, or until her condition no longer satisfied the defini-
tion of total disability.
On May 19, 2006, at Reliance’s request, Schorsch under-
went an independent medical exam with Dr. Richard S.
Tuttle, who produced a five-page report finding her
4 No. 10-3524
capable of performing a full-time medium duty job. The
report listed as sources of information (1) Schorsch’s
account of her primary history, (2) various medical
records, and (3) “some surveillance transcripts from
March 2006.” The surveillance source appears to
reference a report from an investigation firm that
observed Schorsch’s home for three days in March 2006.
Based on the exam, Dr. Tuttle found “little objective
findings to support any significant restrictions or limita-
tions or any significant impairment.” But Dr. Tuttle also
mentioned in the next sentence that “surveillance” re-
vealed that Schorsch “appears to be working out of
her house, doing her childcare operation, and appears to
be actively employed at this point, regardless.” He
then stated that based on the exam, he saw “no
functional impairment” and “no significant limitations
or restrictions” and opined that Schorsch could resume
regular employment. Dr. Tuttle did not mention that
in March 2006 Reliance sent vocational rehabilitation
specialist Daniel Rauch to Schorsch’s home to inter-
view her. Rauch did not report observing a babysitting
service but recommended in his report that Reliance
should update Schorsch’s medical records and ask her
treating physician to comment on her ability to work.
Reliance notified Schorsch by letter dated June 13,
2006, that it would terminate her disability benefits on
June 29, 2006, because based on her file’s medical infor-
mation, namely Dr. Tuttle’s exam, it determined she
could work full-time and thus was no longer totally
disabled. The letter stated that Reliance’s vocational
staff reviewed her “complete claim file” and determined
No. 10-3524 5
based on her medical condition and past training, educa-
tion, and experience that she qualified for a variety of
jobs. The notice repeated that the decision was made
“based on the information contained in your file and
the policy provisions applicable to your claim” and went
on to explain that:
Our determination regarding whether you meet
your group policy’s definition of disability is, and
must be, based on the medical documentation
in your claim file. We have no basis on which
to measure subjective complaints or medical
opinions that are not substantiated by the med-
ical findings. We must determine if the medical
information documents the presence of a physical
or mental condition limiting your ability to per-
form your own or regular occupation.
The notice did not mention the surveillance report, but
stated that Schorsch could “request a review of this
denial by writing to” Reliance’s address and that:
The written request for review must be sent
within 60 days of receipt of this letter and state
the reasons why you feel the claim should not
have been denied. Include any additional docu-
mentation which you feel will support your
claim. We will treat the submission of any addi-
tional documentation as a request for review
unless specifically otherwise instructed. You or
your duly authorized representative is also
entitled to review the pertinent documents upon
which our determination was predicated.
6 No. 10-3524
On August 3, 2006, only nine days before the 60-day
deadline expired on August 12, Schorsch’s counsel sent
Reliance a letter indicating that he represented:
your insured, Deborah Schorsch, in connection
with your revocation of disability payments to
her under the captioned policy. We will ask that
you review the revocation decision. However I
am still waiting for certain documents and
medical records for review before I can provide
you with a detailed analysis of my client’s position
at this time.
Counsel wrote that he hoped to have the materials he
needed “in the next few weeks and I should have a
more detailed analysis presented to you for your con-
sideration before the end of August.” He asked Reliance
to “please consider this notice of an intent to ask for
your reconsideration, which is an option indicated in
your June 13, 2006 letter.” But neither Schorsch nor her
attorney ever submitted a request for review.
Reliance responded in a letter dated February 13,
2007, stating that although “Ms. Schorsch may have
intended to ask for a reconsideration, no such letter
of appeal was ever received by” Reliance “and the dead-
line for asking for an appeal has long since passed. As
such, our decision to terminate Ms. Schorsch’s claim is
final and she has no further avenues of administrative
appeal available to her under the terms of her Policy.”
Counsel responded on April 5, 2007, advising Reliance
that Illinois law, not ERISA, governed the policy, and
that Schorsch never received an ERISA plan. He said
No. 10-3524 7
that “[t]he delay in following up on my August 3, 2006
[letter] was due mostly to my trial schedule.” Counsel
wrote that the decision to terminate Schorsch’s benefits
breached the policy and that Schorsch would pursue
her remedies under Illinois law by suing unless “you
wish to reconsider receiving a different analysis,
please advise.”
On May 22, 2009, Schorsch’s complaint for breach of
contract and vexatious and unreasonable denial of
benefits under Illinois insurance law was filed in Illinois
state court. Reliance removed the action to federal district
court and Schorsch filed an amended complaint seeking
to recover the same long-term disability benefits under
ERISA. See 29 U.S.C. § 1132(a)(1)(B). During discovery,
Reliance admitted that it had lost the administrative
record relating to Schorsch’s claim. Eventually Reliance
produced some “computer screens” but it never
found the documents it used in deciding to terminate
Schorsch’s benefits. In response to Schorsch’s interrogato-
ries, Reliance stated, “Dave Lembach, Vocational Rehab-
ilitation Specialist . . . conducted the vocational evalua-
tion referenced in” the June 13 letter. Yet in Lembach’s
deposition, he first testified that he did not make “any
decision as to whether she could perform a particular
occupation,” and later said he did not recall making the
evaluation referenced in Reliance’s interrogatory an-
swer. After discovery, the district court granted Reliance’s
motion for summary judgment on the ground
that Schorsch failed to exhaust her administrative reme-
dies. Schorsch v. Reliance Standard Life Ins. Co., No. 09 C
8 No. 10-3524
3740, 2010 WL 3893914 (N.D. Ill. Sept. 29, 2010) (unpub-
lished opinion and order). Schorsch appealed.
II. Analysis
We review the district court’s grant of summary judg-
ment de novo, viewing the evidence in the light most
favorable to Schorsch. See Fleming v. Livingston County,
Ill., 674 F.3d 874, 878 (7th Cir. 2012). We will affirm
if there is “no genuine dispute as to any material fact”
and Reliance is “entitled to judgment as a matter of
law.” See id.The parties dispute the district court’s exercise of discre-
tion in dismissing Schorsch’s claim for failure to exhaust
her administrative remedies. As the district court recog-
nized, Schorsch does not seriously contest the fact that
she failed to timely request a review. In fact, she never
requested a review. Instead, she argues that a series of
irregularities in Reliance’s process for terminating her
benefits denied her meaningful access to review and
that as a result, Reliance is estopped from benefitting
from her failure to exhaust. Accordingly, we consider
whether the district court abused its discretion in
requiring “exhaustion as a prerequisite to bringing suit.”
Edwards v. Briggs & Stratton Ret. Plan, 639 F.3d 355, 361 (7th
Cir. 2011) (quoting Salus v. GTE Directories Serv. Corp., 104
F.3d 131, 138 (7th Cir. 1997)). We will reverse only if the
district court’s decision is “obviously in error.” Id. (quoting
Salus, 104 F.3d at 138).
Congress established the administrative claims resolu-
tion process to “reduce the number of frivolous law-
No. 10-3524 9
suits under ERISA; to promote the consistent treatment
of claims for benefits; to provide a nonadversarial
method of claims settlement; and to minimize the cost of
claims settlement for all concerned.” Kross v. W. Elec. Co.,
701 F.2d 1238, 1244-45 (7th Cir. 1983) (quoting Amato v.
Bernard, 618 F.2d 559, 567 (9th Cir. 1980)). Although
ERISA does not require administrative exhaustion as
a prerequisite to suit, “we have interpreted ERISA as
requiring exhaustion of administrative remedies as a
prerequisite to bringing suit under the statute.” Edwards,
639 F.3d at 360. The exhaustion requirement gives force
to Congress’s intent in establishing the administrative
claims resolution process by serving the objectives
noted above. Id. at 360-61. That said, courts may excuse
a failure to exhaust administrative remedies “where
there is a lack of meaningful access to review proce-
dures, or where pursuing internal plan remedies would
be futile.” Id. at 361.
Schorsch argues that Reliance should be estopped from
asserting her failure to exhaust as a defense. To invoke
estoppel, Schorsch must show, inter alia, that Reliance
knowingly misrepresented or concealed a material fact,
that she did not know the truth, and that she reasonably
relied on the misrepresentation or concealment to her
detriment. See, e.g., Loyola Univ. of Chi. v. Humana Ins. Co.,
996 F.2d 895, 902 (7th Cir. 1993). Schorsch cannot cir-
cumvent ERISA’s administrative remedies by simply
pointing to errors in Reliance’s claims termination pro-
cess. Flaws in Reliance’s termination notice and other
errors become relevant only if Schorsch reasonably
relied on them in failing to request a review of its decision
10 No. 10-3524
to terminate her disability benefits, see id., or if Reliance’s
missteps denied her meaningful access to a review, see
Edwards, 639 F.3d at 361. (She doesn’t allege that pursuing
a review would have been futile.)
Schorsch’s first argument for reasonable and detri-
mental reliance is that Reliance’s June 13 letter misrepre-
sented that her “complete claim file” was “reviewed by
our vocational staff” and that it failed to disclose that
the “real basis” for terminating benefits was the surveil-
lance report claiming she ran a babysitting service. She
also suggests that the notice was deficient in failing to
disclose Rauch’s written report, which didn’t recom-
mend terminating benefits. But Reliance had a good
basis for its decision to terminate benefits, even if it
didn’t disclose every piece of information it relied on
to Schorsch.
Reliance based its decision in part on Dr. Tuttle’s May 19,
2006, examination of Schorsch. Dr. Tuttle conducted a
thorough physical examination and documented his
observations and findings, including that Schorsch did
“not appear to be in any significant pain or distress.” He
wrote that she had “no significant objective findings,
really the only finding is related to subjective complaints
of pain” and “there are no significant pain behaviors
or sitting intolerance or any significant findings to any
significant pain condition or any significant spinal cord
injury.” Based on his exam, Dr. Tuttle found “little ob-
jective findings to support any significant restrictions
or limitations or any significant impairment.” He saw
“no functional impairment” and opined “with a rea-
No. 10-3524 11
sonable degree of medical certainty that Ms. Schorsch
can resume regular employment at a medium duty level
for an 9-hour day or 40 hour work-week.” To be sure,
Dr. Tuttle referred to the surveillance of March 2006,
but his report reveals that this was done to corroborate
his findings that she had no significant limitations or
restrictions. His opinion was based on his examination
of Schorsch. Thus, Schorsch’s suggestion that the sur-
veillance report was the only basis for Reliance’s ter-
mination decision is unsupported by the record.
Schorsch points to several cases, e.g., Schneider v. Sentry
Group Long Term Disability Plan, 422 F.3d 621, 628 (7th
Cir. 2005), where we found that denial notices failed to
substantially comply with ERISA’s statutory and regula-
tory requirements. But they are of little assistance here
because the claimants in those cases exhausted their
administrative remedies. See id. at 625-26. These cases
suggest that Reliance’s termination notice may have
been less than perfect, but deficiencies in the notice
would not necessarily excuse Schorsch’s failure to
exhaust her administrative remedies. Nor does Robyns
v. Reliance Standard Life Ins. Co., 130 F.3d 1231 (7th Cir.
1997), assist Schorsch. There, the claimant alleged that
she was excused from the exhaustion requirement
because she was never informed of the internal admin-
istrative appeals process. Id. at 1236, 1238. Schorsch was
informed of her right to seek review.
And Reliance provided Schorsch with adequate notice
of the reasons for its decision and the process for review.
Its letter informed Schorsch that it would terminate
12 No. 10-3524
her disability benefits based on the medical information
in her file, namely Dr. Tuttle’s exam, applicable policy
provisions, Reliance’s review of her complete claim
file, and its determination that she could work full-time
and was no longer totally disabled. The letter told her
that she could submit a “written request for review,”
stating “the reasons why you feel the claim should not
have been denied. Include any additional documenta-
tion which you feel will support your claim.” It also
notified her that she or her representative was “entitled
to review the pertinent documents upon which our de-
termination was predicated.” Thus, Reliance’s termina-
tion letter gave Schorsch a “reasonable opportunity” to
provide additional documentation to support her claim
and seek a review of its decision. See Aschermann v.
Aetna Life Ins. Co., No. 12-1230, 2012 WL 3090291, at *4-*6
(7th Cir. July 31, 2012). Nothing in Reliance’s notice
prevented Schorsch from requesting a review.
Yet even assuming the worst about Reliance’s pro-
cess—as Schorsch claims, the company “basically lied in
its June 13, 2006 letter” that it performed a vocational
assessment and that Reliance actually based its decision
on the surveillance report as opposed to her medical
information — Schorsch fails to show how she reasonably
relied on those alleged misrepresentations. She claims
she would have immediately contested the decision
had she known the circumstances behind the vocational
assessment or that Dr. Tuttle thought she ran a baby-
sitting business from her home. But this after-the-fact
claim does not show that had she known these alleged
defects in Reliance’s review process, she would have
No. 10-3524 13
acted differently. Schorsch could have raised these
alleged defects in the administrative review process.
Indeed, the statutorily mandated administrative review
process best addresses such claims, which is one of the
reasons exhaustion is required. See Edwards, 639 F.3d
at 360. Schorsch obviously could not contest what she
did not know, but the termination notice gave her and
her counsel an opportunity to “review the pertinent
documents upon which” Reliance made its decision.
Because Schorsch failed to exercise that option, she
cannot now claim that had she known certain details,
material or otherwise, she would have requested review
of Reliance’s decision to terminate her benefits.
Schorsch’s second argument is that Reliance’s stated 60-
day deadline to appeal was incorrect because the
2002 amendments to the regulations provide for 180 days
to appeal an adverse determination. See 29 C.F.R.
§ 2560.503-1(h)(3)(i). Reliance maintains that it relied on
the older regulations providing for 60 days because the
2002 regulations only apply to “claims filed under a
plan on or after January 1, 2002,” 29 C.F.R. § 2560.503-
1(o)(1), and Schorsch filed her original claim well
before then. We need not decide if the new regulations
apply to appeals made after 2002 regarding adverse
decisions of pre-2002 claims. Even if they do apply and
Reliance’s letter should have given Schorsch 180 days to
appeal, she has not shown how that would have made
any difference in her failure to file a request for a re-
view. Simply stated, Schorsch never requested review. The
same goes for her rather skeletal argument regarding
the inadequate notice of ERISA rights. Schorsch wholly
14 No. 10-3524
fails to explain how she could have reasonably relied on
the absence of information regarding her right to sue
under ERISA in failing to seek an administrative review.
Schorsch also argues that Reliance’s loss or destruc-
tion of the administrative record was a misstep that
excuses her failure to seek review. But she has not
shown how Reliance benefitted from the loss or destruc-
tion of the administrative record. Nor has she shown
that she could have relied on that future occurrence
in failing to seek review years earlier. Reliance’s loss of
the administrative record is regrettable, but we cannot
see how it had any effect on Schorsch’s failure to seek
review years earlier.
Similarly, the suggestion that Reliance’s failure to tell
Schorsch or her counsel that ERISA governed the policy
is also a non-starter. The plan administrator under
29 U.S.C. § 1002(16)(A) is the person designated by
the terms of the plan or the plan sponsor if the plan does
not designate an administrator. Here, the summary
plan description identifies United Conveyor as the plan
administrator. We have long refused to attribute an em-
ployer’s behavior to an insurer because the employer is
not the insurer’s agent. Sur v. Glidden-Durkee, a div. of S. C.
M. Corp., 681 F.2d 490, 493 (7th Cir. 1982) (refusing to
impute employer’s misrepresentations to insurer be-
cause an employer is not the insurer’s agent); Metro. Life
Ins. Co. v. Quilty, 92 F.2d 829, 832 (7th Cir. 1937) (noting
that “the employer does not act as agent for the in-
surer”). United Conveyor as the plan administrator had
the responsibility of providing Schorsch with a summary
No. 10-3524 15
plan description, 29 U.S.C. §§ 1021(a), 1022; see also
CIGNA Corp. v. Amara, ___ U.S. ___, 131 S. Ct. 1866, 1877
(2011) (“ERISA § 102(a) . . . obliges plan administrators
to furnish summary plan descriptions”), and we will not
impute its apparent and unfortunate failing to Reliance.
Schorsch maintains that Reliance failed to establish
or follow reasonable claims procedures under 29 C.F.R.
§ 2560.503–1(l) and therefore she should “be deemed to
have exhausted the administrative remedies available
under the plan.” Id. Section 2560.503–1(l) applies “on
the basis that the plan has failed to provide a
reasonable claims procedure that would yield a decision
on the merits of the claim.” The Labor Department
has explained that the provision was intended to strip
judicial deference from decisions made in the absence
of minimal procedural protections. 65 Fed. Reg. 70246–01,
70255 (Nov. 21, 2000). “At a minimum, claimants denied
access to the statutory administrative review process
should be entitled to take that claim to a court” because
“[c]laimants should not be required to continue to
pursue claims through an administrative process that
does not comply with the law.” Id. at 70256. Section
2560.503–1(l) assumes claimants attempted to exhaust
their administrative remedies but the lack of a rea-
sonable claims procedure blocked “a decision on the
merits of the claim.” Schorsch, who never attempted to
exercise her opportunity to seek review, fails to show
how Reliance denied her access to its administrative
review process. Reliance’s termination notice told her
how and where she could request a review of its decision
and the allotted period in which she could “state the
16 No. 10-3524
reasons why you feel the claim should not have been
denied.” And Schorsch could have requested the docu-
mentation underlying Reliance’s decision.
Finally, Schorsch argues that Reliance should not
be permitted to take advantage of the exhaustion
doctrine because it was intended to benefit a fiduciary
that conducts itself in full compliance with ERISA. We
do not condone Reliance’s missteps—particularly the
loss of the administrative record, the confusion over
who performed her vocational assessment, and the im-
pression it gave Schorsch that its decision was based
only on her medical records when in fact the surveil-
lance report suggesting she ran a babysitting service
influenced the decision by some measure. But Schorsch
cannot show how these problems caused her failure to
seek review of Reliance’s termination decision. The con-
gressionally mandated internal claims resolution process
is the first stop in ERISA’s scheme for addressing such
disputes. Schorsch never followed Reliance’s instruc-
tions for seeking review, and she does not show how she
reasonably relied on any misrepresentation or lack of
information in failing to exhaust her administrative
remedies. Thus, the district court did not abuse its dis-
cretion in requiring exhaustion.
III. Conclusion
We A FFIRM the district court’s judgment.
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