Eric Zall v Standard Insurance CompanyEric Zall v Standard Insurance Company
Zall filed this suit under ERISA, the Employee Retirement Income Security Act,
I. Factual & Regulatory Background
Since the turn of the century, Department of Labor regulations have required the administrator of an employee benefit plan to give a claimant, ”upon request,” copies of “all documents, records, and other information” that the administrator has considered, generated, or relied upon in making an adverse benefit determination.
Zall filed his original claim for long-term disability benefits back in 2013, when the 2000 version of the regulations was operative, after pain and numbness forced him to stop working. Standard denied the claim initially, but Zall appealed through Standard‘s administrative review process. His appeal was successful. In late 2014, after considering additional medical information that Zall had submitted and consulting a board-certified orthopedic surgeon, Standard approved Zall‘s claim, including payment of benefits retroactive to November 2013, when Zall had filed the claim.
Less than a year after approving Zall‘s claim, however, Standard began reviewing his case to see if his condition might be subject to a 24-month benefit limit in the policy. That limit applies, in relevant part, to a disability “caused or contributed to by ... carpal tunnеl or repetitive motion syndrome” or “diseases or disorders of the cervical, thoracic, or lumbosacral back and its surrounding soft tissue.” The 24-month limit does not apply, however, to a disability “caused or contributed to by ... herniated discs with neurological abnormalities that are documented by electromyogram and computerized tomography or magnetic resonance imaging” or “radiculopathies that are documented by electromyogram.” The disputed issue on the merits in this lawsuit is whether Zall qualifies for that exception to the 24-month limit.
For reasons that are unclear from the record, Standard did not, during its 2015 review, ask Zall for сopies of his then-recent magnetic resonance imaging and electrodiagnostic reports even though (a) consulting physicians recommended reviewing those reports and (b) such documentation was required for coverage under the policy. Also for reasons that are unclear, Standard did not immediately complete its review of Zall‘s claim. It continued to pay benefits for years.
In 2018 Standard resumed its review in earnest. Standard finally requested copies of Zall‘s diagnostic reports for his electromyography and magnetic resonance imaging. Zall provided them. After consulting with physicians who had studied Zall‘s medicаl file, Standard concluded that his condition was subject to the 24-month limit, and it stopped paying benefits at the end of 2019. By that time, as we discuss below, the Department of Labor‘s amendments to the regulations had taken effect for cases like Zall‘s. See 82 Fed. Reg. 56,560-01, 56,560 (Nov. 29, 2017) (setting amendments’ applicability date as April 1, 2018). Zall again appealed through Standard‘s administrative review process.
During the administrative review process, Standard consulted with another physician, Dr. Michelle Alpert. Dr. Alpert reviewed Zall‘s medical file and summarized her findings in a report dated August 3, 2020. She disagreed with Zall‘s own physicians’ readings of his diagnostic reports. Her interpretations supported the conclusion that his condition was subject to the 24-month benefits limit. On August 20,
Nine days later, Standard notified Zall that it was rejecting his appeal and would in fact be terminating his benefits. Based substantially on Dr. Alpert‘s report, Standard had determined that Zall‘s condition was subject to the 24-month benefit limit. Although the denial letter summarized Dr. Alpert‘s findings, Standard did not attach a copy of her report. The letter noted, however, that Standard would, upon “request,” provide Zall “with copies of all documents, records and other information relevant to the claim.”
II. Procedural History
Having exhausted his administrative appeals, Zall filed this suit against Standard. He alleged that Standard had violated ERISA by arbitrarily and capriciously conducting the review of his benefits claim and wrongfully refusing to continue paying him long-term disability benefits. Zall sought both payment of retroactively owed benefits and a declaration that Standard continues to owe him benefits.
Zall presented three principal challenges in the district court. First, Standard had “denied him a full and fair review” by failing to give him a copy of Dr. Alpert‘s report. See Zall, 2021 WL 6112638, at *6. That failure, Zall contended, meant that he never had an “opportunity to respond” to Dr. Alpert‘s findings before Standard made its final decision to terminate his benefits. Second, Zall argued that Standard‘s conclusion that his condition was subject to the 24-month limit was “not rationally supported by the medical evidence.” Finally, Zall argued that, by paying him benefits for more than six years after Standard claims his benefits should have ended, Standard waived its right to terminate those benefits.
The district court was not persuaded. The court read the 2018 amendments to the regulations as applying only tо claims first filed after April 1, 2018. Id. at *7. Under that view, the old regulation applied and Standard had not been “obliged to produce Dr. Alpert‘s report to Dr. Zall before issuing its final decision,” so Zall‘s “full and fair review” claim must fail. Id.
In terms of the medical evidence, because Standard‘s determination needed only to be “rationally supported by record evidence,” Standard “was entitled to credit the opinions of its consulting physicians,” including those of Dr. Alpert, over those of Zall‘s own physicians. Id. at *8, quoting Black v. Long Term Disability Ins., 582 F.3d 738, 745 (7th Cir. 2009) (deferring to “Standard‘s choice between competing medical opinions“). Standard‘s determination that Zall‘s condition fell within the 24-month benefit limit was neither arbitrary nor capricious, the court said, because Dr. Alpert‘s interpretations of Zall‘s 2014 diagnostic reports provided rational support for the denial. Zall, 2021 WL 6112638, at *8–9, *11. The district court also rejected Zall‘s waiver argument: “ERISA does not prohibit a plan administrator from performing a periodic review of a beneficiary‘s disability status.” Id. at *11, quoting Holmstrom v. Metropolitan Life Ins. Co., 615 F.3d 758, 767 (7th Cir. 2010). On cross-motions for summary judgment, the district court therefore ruled against Zall and entered judgment for Standard. Id. at *1, *11.
On appeal, Zall has abandoned the waiver argument, but he continues to argue that (1) Standard did not afford him a “full and fair review” because it failed to provide him with Dr. Alpert‘s report before
III. Analysis
A. Standard of Review
We review a grant of summary judgment de novo, showing no deference to the district court‘s legal analysis. Weitzenkamp v. Unum Life Ins. Co. of America, 661 F.3d 323, 329 (7th Cir. 2011). The default rule under ERISA is that courts apply de novo review to denials of benefits, Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989), but most benefit plans give the administrator “discretionary authority” to interpret the plan and to decide claims for benefits, as permitted by Firestone. The plan here does just that. Courts review exercises of such discretionary authority under the deferential arbitrary-and-capricious standard. Hennen v. Metropolitan Life Ins. Co., 904 F.3d 532, 539 (7th Cir. 2018).1
Arbitrary-and-capricious review “turns on whether the plan administrator communicated ‘specific reasons’ for its determination to the claimant, whether the plan administrator affordеd the claimant ‘an opportunity for full and fair review,’ and ‘whether there is an absence of reasoning to support the plan administrator‘s determination.‘” Majeski v. Metropolitan Life Ins. Co., 590 F.3d 478, 484 (7th Cir. 2009), quoting Leger v. Tribune Co. Long Term Disability Benefit Plan, 557 F.3d 823, 832–33 (7th Cir. 2009).
B. The 2018 Regulatory Amendments
Whether Standard failed to provide Zall with the “full and fair review” ERISA requires,
Under the 2002 version of the regulation, when a claimant appealed an adverse benefit determination, a “full and fair review” required the plan to provide the claimant, ”upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant‘s claim for benefits.”
As amended in 2018, the regulations demand more of a plan administrator. In an appeal of an adverse benefit determination, a “full and fair rеview” now requires that, “before the plan can issue an adverse benefit determination on review on a disability benefit claim, the plan administrator shall provide the claimant, free of charge, with any new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination (or at the direction of the plan, insurer or such other person) in connection with the claim.”
As the district court read them, the 2018 amendments did not apply, so Standard would have needed to provide Zall with a copy of Dr. Alpert‘s report only if he had requested it. Zall did not request the report until after Standard finally denied his appeal, so he was afforded all the process legally required. We disagree with that reading of the 2018 amendments.
1. The Applicable Text
The Department of Labor included these provisions for effective dates for the 2018 amendments to
(p) Applicability dates and temporarily applicable provisions.
(1) Except as provided in paragraphs (p)(2), (p)(3) and (p)(4) of this section, this section shall apply to claims filed under a plan on or after January 1, 2002.
(2) This section shall apply to claims filed under a group health plan on or after the first day of the first plan year beginning on or after July 1, 2002, but in no event later than January 1, 2003.
(3) Paragraphs (b)(7), (g)(1)(vii) and (viii), (j)(4)(ii), (j)(6) and (7), (l)(2), (m)(4)(ii), and (o) of this section shall apply to claims for disability benefits filed under a plan after April 1, 2018, in addition to the other paragraphs in this rule applicable to such claims.
(4) With respect to claims for disability benefits filed under a plan from January 18, 2017 through April 1, 2018, this paragraph (p)(4) shall apply instead of pаragraphs (g)(1)(vii), (g)(1)(viii), (h)(4), (j)(6) and (j)(7).
We “begin our interpretation of the regulation with its text.” Green v. Brennan, 578 U.S. 547, 553 (2016). Only where the text is unclear must we “turn to other canons of interpretation.” Id. at 554. We think the text of the amended regulation is clear as applied to this case, so in this case our analysis can begin and end with that text.
Paragraph (p)(1) establishes a general rule of applicability: “this section shall apply to claims filed under a plan on or after January 1, 2002.” Because Zall filed his original claim in 2013, paragraph (p)(1) encompasses his case, so the new version governs unless an exception applies.
Paragraph (p)(1) identifies three exceptions, which are stated in paragraphs
Critically, sub-paragraph (h)(4)(i), which eliminated the “upon request” language and upon which Zall relies to argue that he was not afforded a “full and fair review,” is not among those paragraphs identified in paragraph (p)(3).
Finally, the (p)(4) exception renders five provisions—“(g)(1)(vii), (g)(1)(viii), (h)(4), (j)(6) and (j)(7)“—inapplicablе to claims filed between January 18, 2017 and April 1, 2018. While paragraph (h)(4) with its removal of the “upon request” language is among the provisions identified in paragraph (p)(4), the exception does not apply to Zall‘s appeal since he filed his claim before this carve-out period began.2
Accordingly, by the regulation‘s plain text, no exception applies to Zall‘s claim, so the 2018 amendments applied to his administrative appeal of the benefit termination decision.
To avoid this straightforward reading of the controlling text, Standard makes three arguments. First, Standard points to evidence from the rule-making process to argue that the applicability dates in the text of subsection (p) are incorrect. Second, Standard argues that Zall waived his procedural-violation argument by failing to make it during his administrative appeal. Finally, Standard argues that the 2018 amendments cannot be read to apply to claims filed as far back as 2002 because that reading would make the amendments impermissibly retroactive. These arguments are not persuasive and cannot overcome the text of the regulation.
2. Extratextual Evidence
Standard argues that, despite the clear meaning of the regulation‘s text, the 2018 amendments were not meant to apply to any claims filеd before April 1, 2018. As evidence of the Department of Labor‘s purported intent, Standard directs our attention to the “summary” statement the Department issued when announcing the final rule. That statement said that “the applicability of a final rule amending the claims procedure requirements applicable to ERISA-covered employee benefit plans that provide disability benefits” would be April 1, 2018. 82 Fed. Reg. 56,560-01, 56,560 (Nov. 29, 2017).
As a general rule, of course, where the text of the regulation itself is clear, we need not consider extratextual evidence of the kind Standard presents. See Green, 578 U.S. at 553–54; see also Beeler v. Saul, 977 F.3d 577, 590 (7th Cir. 2020) (“When text is clear and unambiguous, ‘the court must give it effect and should not look to extrinsic aids for construction.‘“), quoting In re Robinson, 811 F.3d 267, 269 (7th Cir. 2016). More specific to the issue in this case, it is not at all unusual for a summary of a rule to gloss over detailed nuances in the rule
Even taking the Department of Labor‘s summary statement into account, we find no conflict between the announced applicability date and the text of the amendments. All the aрplicability date means is that until April 1, 2018, the old procedures governed, and after that date, the new procedures governed. Standard sees a conflict between the summary statement and the regulations merely because Standard believes (erroneously) that the new rules apply only to claims that were filed after the applicability date.
This is the critical flaw in Standard‘s argument. Once the procedures became operative, they applied to all active claims, as long as they were first filed after January 1, 2002. On April 1, 2018, Standard had not even begun its administrative appeal review of Zall‘s claim. It would be 18 months before Standard would terminate his benefits, morе than 24 months before Zall would appeal, and more than 27 months before Dr. Alpert would write her report. For purposes of Standard‘s argument, it does not matter that Zall filed his original claim in 2013 when the earlier claims procedures were in place. What matters is that when the new claims procedures under the amended regulation took effect, Standard had not yet reached an adverse benefit determination and Zall had not yet begun his administrative appeals.3
3. Waiver
If a “plan fails to strictly adhere to all” of the procedural requirements “with respect to a claim, the claimant is deemed to have exhausted the administrаtive remedies under the plan.”
According to Standard, the regulations governing its appeal process are “not designed to permit Zall to sabotage the administrative review process by remaining silent on a purported regulatory violation, pursuing the allegedly deficient administrative proceedings to conclusion, and then utiliz[ing] the claimed regulatory violation to prevail in court and demand a second administrative appeal.” In other words, Standard argues, Zall cannot now challenge Standard‘s failure to provide him with a copy of Dr. Alpert‘s report because he did not raise the issue with Standard at the correct time during the administrative review process.
The problem is that Standard first notified Zall of Dr. Alpert‘s review and report
Standard committed the procedural error in the very last stage of Zall‘s administrative appeal. Only after Standard announced its final decision could Zall have known that Standard had failed to abide by the required procedures. Zall never had “a reasonable opportunity to respond prior to” the final decision.
Standard also argues that Zall waived his argument about the amended regulation in the district court “by failing to allege it” in his complaint. This argument reflects a deep and too-common misunderstanding of federal pleading requirements. We have made this point repeatedly: “The Federal Rules of Civil Procedure do not require a plaintiff to plead legal theories.” Chessie Logistics Co. v. Krinos Holdings, Inc., 867 F.3d 852, 859 (7th Cir. 2017), quoting Vidimos, Inc. v. Laser Lab Ltd., 99 F.3d 217, 222 (7th Cir. 1996), accord, e.g., Johnson v. City of Shelby, 574 U.S. 10, 10–11 (2014) (per curiam) (summarily reversing dismissal based on failure to identify legal theory in complaint); Skinner v. Switzer, 562 U.S. 521, 529–30, 537 (2011) (reversing dismissal); Zimmerman v. Bornick, 25 F.4th 491, 492–94 (7th Cir. 2022) (allowing amendment of complaint); Beaton v. SpeedyPC Software, 907 F.3d 1018, 1023 (7th Cir. 2018) (“As the Supreme Court and this court constantly remind litigants, plaintiffs do not need to plead legal theоries.“). Also, when a complaint does present legal theories, those theories may later be altered or refined. Chessie Logistics, 867 F.3d at 859.
Zall‘s complaint alleged broadly that Standard “did not perform a ‘full and fair review’ of” Zall‘s claim. Dkt. 1 ¶30. Zall properly honed that argument as the parties proceeded toward summary judgment. “When a new argument is made in summary judgment briefing,” the district court may “refuse to consider [any] new factual claims,” but if the new argument merely “changes the complaint‘s ... legal theories,” then the district court should exercise its discretion to hear the argument so long as doing so will not “‘cause unreasonable delay,’ or make it ‘more сostly or difficult’ to defend the suit.” Id. at 860, quoting Vidimos, 99 F.3d at 222; see also Whitaker v. T.J. Snow Co., 151 F.3d 661, 663 (7th Cir. 1998) (where “both parties squarely address[ ]” a legal theory “in their summary judgment briefs, the complaint [is] constructively amended” to incorporate
4. Retroactivity
“Retroactivity is not favored in the law. Thus, congressional enactments and administrative rules will not be construed to have retroactive effect unless their language requires this result.” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988). Likewise, “a statutory grant of legislative rulemaking authоrity will not, as a general matter, be understood to encompass the power to promulgate retroactive rules unless that power is conveyed by Congress in express terms.” Id.
Standard argues that the 2018 amendments cannot be read as applying to Zall‘s claim without violating these general principles. The power to promulgate retroactive rules, Standard contends, is beyond the authority Congress has bestowed on the Department of Labor, for nothing in sections 1133 or 1135 of ERISA expressly conveys such power.
If the regulation‘s 2018 amendments had substantive import, Standard‘s argument might need further consideration. But this is a purely procedurаl rule, aptly titled “Claims procedure.”
“Changes in procedural rules may often be applied in suits arising before their enactment without raising concerns about retroactivity.” Landgraf v. USI Film Prods., 511 U.S. 244, 275 (1994). This is so because applying the new procedural rule “usually ‘takes away no substantive right but simply changes‘” the process through which substantive rights are adjudicated. Id. at 274, quoting Hallowell v. Commons, 239 U.S. 506, 508 (1916). “Because rules of procedure regulate secondary rather than primary conduct, the fact that a new procedural rule was instituted after the conduct giving rise to the suit does not make application of the rule ... retroactive.” Id. at 275. Unless there is a “retroactive effect” that “would impair rights a party possessed when he acted, increase a party‘s liability for past conduct, or impose new duties with respect to transactions already completed[,]” we are unconcerned with whether Congress expressly provided for retroactive application. Id. at 280. Here, it would have been easy for Standard to comply with the new procedural requirement without any prejudice to its interests. All it had to do was send Zall Dr. Alpert‘s report and give him a reasonable opportunity to respond to it. Standard‘s retroactivity argument does not apply to the procedural rule at issue in this case.
To sum up, by the plain text of the regulation, the 2018 amendments applied to Zall‘s claim. Standard therefore violated the operative regulation when it failed to provide Zall with a copy of Dr. Alpert‘s
C. Prejudice to Zall‘s Claim
Zall argues that this procedural violation—the failure to afford him an opportunity to respond to Dr. Alpert‘s report—was prejudicial to the substance of his benefits claim. Standard has not responded to this argument, and the district court did not address it because it found no procedural violation.
The First Circuit recently dealt with this same scenario in Jette v. United of Omaha Life Ins. Co., 18 F.4th 18 (1st Cir. 2021). The court chose to reach the question of prejudice because it could be еasily answered “at this stage on the basis of the administrative record before” the court. Id. at 32. Jette found that the claimant had indeed been prejudiced by the administrator‘s failure to provide a copy of a consulting physician‘s report that it relied upon to deny benefits. Id. at 23, 32–33. The record here reveals facts similar to those that were decisive in Jette.
Standard submitted Zall‘s file to Dr. Alpert for review, and Dr. Alpert‘s medical conclusions contradicted those of Zall‘s own physicians. In particular, Dr. Alpert disagreed with how Zall‘s physicians had read the 2014 MRI and EMG reports and noted that Zall “had not had an updated MRI” in the six intervening years. Summarizing her findings and responding to Standard‘s particular inquiries regarding conditions subject to the 24-month limit, Dr. Alpert emphasized that the 2014 diagnostic reports could not support Zall‘s benefits claim, writing that Zall had provided “no medical evidence to support” his claim as of January 2020.
Because Zall was unaware of the report until just nine days before Standard made its final decision to terminate his benefits, and because Standard gave Zall a copy of the report only after his attorney requested one in September 2020, Zall was never afforded a meaningful opportunity to respond to the report‘s contents while his claim was still undergoing administrative review. But Stаndard relied on that undisclosed report “to uphold its decision to terminate” the long-term disability benefits. Jette, 18 F.4th at 32. Like the First Circuit, we therefore find that the failure to provide that report before rendering a final adverse determination was prejudicial to Zall‘s claim. Id. at 33.4
D. Whether Zall‘s Condition Was Subject to the 24-Month Limit
Because of the procedural violation, we cannot say reliably whether Standard acted arbitrarily and capriciously in terminating Zall‘s benefits. If Zall had “been afforded the full and fair review to which [he] was entitled,” including access to Dr. Alpert‘s report, he would have had the opportunity to respond to that report. Jette, 18 F.4th at 33.
We cannot know whether Zall‘s response wоuld have helped his claim, but it is certainly possible that he might have tried to provide updated diagnostic tests and imaging. If Zall were to provide new objective test results, we do not know what they would show. The administrator might ultimately arrive at the same adverse determination. But Standard could not ignore
Like the First Circuit therefore, “we will not review” Standard‘s “substantive decision at this time.” Jette, 18 F.4th at 33. Rather, Zall must be allowed to “go back to the administrative stage, where [he] will have the opportunity to ‘submit written comments, documents, records, and other information relating to [his] claim,’
We REVERSE the entry of summary judgment in favor of Standard and REMAND to the district court with instructions to REMAND Zall‘s case to Standard for a full and fair review of his claim.