Cheryl Wallace v. Oakwood Hosp., 954 F.3d 879

Background

Cheryl Wallace, an Oakwood (now Beaumont) registered nurse, fell ill in Sept. 2012 and took medical leave beginning Oct. 2012; she returned to work Apr. 7, 2013, then went back on leave May 13, 2013 and never returned.
Oakwood switched LTD insurers: Hartford insured the plan through Dec. 31, 2012; Reliance Standard became the insurer effective Jan. 1, 2013 and was the claims fiduciary for Wallace’s claim.
Reliance denied Wallace’s LTD claim citing the policy’s pre‑existing‑condition limitation; Reliance’s denial letter described an appeal process but the plan document in the administrative record contained no detailed internal-appeal procedures or exhaustion requirement.
Wallace filed suit under ERISA § 502(a)(1)(B) without filing a written internal appeal; the district court granted judgment on the administrative record, awarding LTD benefits and attorneys’ fees; Reliance appealed.
The Sixth Circuit held that Reliance’s plan document failed to establish the required claims‑review procedures, so administrative remedies were deemed exhausted; but the court VACATED the district court’s benefits and fee awards and REMANDED for additional factfinding on several discrete factual questions before benefits can be awarded.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether exhaustion of internal remedies was required before suit	Wallace: plan did not describe any internal appeal process, so exhaustion not required / deemed exhausted under ERISA regs	Reliance: exhaustion applies even if not in plan document; Wallace failed to exhaust	Held: Affirmed denial of dismissal. Because the plan document did not establish required claims‑review procedures (and was misleading), administrative remedies are deemed exhausted under 29 C.F.R. §2560.503‑1(l).
Whether Reliance properly denied LTD benefits (pre‑existing condition and transfer provision)	Wallace: covered under the policy’s Transfer of Insurance Coverage and entitled to credit against pre‑existing limitation	Reliance: pre‑existing condition exclusion bars benefits because effective date/insured status make exclusion applicable	Held: Vacated district court judgment on the merits and remanded—insufficient, conflicting facts in the administrative record (effective date, full‑time status, prior‑carrier coverage, completion of elimination period, duration of disability, and credit under prior policy) require further factfinding.
Remedy: award and calculation of LTD benefits	Wallace: entitled to back and ongoing LTD benefits as the district court calculated	Reliance: calculation premature if coverage/limitations unresolved	Held: Vacated benefit award as district court abused discretion by awarding benefits without resolving factual issues on remand; benefits calculation must await further findings.
Attorneys’ fees award	Wallace: entitled to fees; achieved some success on merits	Reliance: fee award improper given reversal/vacatur of benefits	Held: Vacated fee award and remanded for reconsideration in light of this opinion; district court may re‑award fees after re-evaluating King/Hardt factors.

Key Cases Cited

Hitchcock v. Cumberland Univ., 851 F.3d 552 (6th Cir. 2017) (exhaustion legal question reviewed de novo)
Curtiss‑Wright Corp. v. Schoonejongen, 514 U.S. 73 (1995) (plan documents must be written instruments enabling beneficiaries to learn rights)
Heimeshoff v. Hartford Life & Acc. Ins. Co., 571 U.S. 99 (2013) (circuits have enforced exhaustion defenses in ERISA cases)
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989) (principles governing judicial review of ERISA benefit denials)
Marks v. Newcourt Credit Group, 342 F.3d 444 (6th Cir. 2003) (substantial‑compliance analysis applied to ERISA notice letters)
Hoover v. Provident Life & Acc. Ins. Co., 290 F.3d 801 (6th Cir. 2002) (review limited to administrative record)
Perez v. Aetna Life Ins. Co., 150 F.3d 550 (6th Cir. 1998) (ambiguities in ERISA‑governed plans construed against drafter)
Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242 (2010) (attorney‑fees: some success on the merits can justify fees)